Cracks appearing for leveraged loans that helped cause financial crisis
The average adjustable-rate mortgage is nearly $700,000. Here’s what that tells us. - MarketWatch
The average adjustable-rate mortgage is nearly $700,000. Here’s what that tells us. - MarketWatch
++++
Market and Market Commentary:
Loose money era leaves trail of U.S. corporate debt junkies | Reuters
S&P 500 EPS growth outlook turns negative, while Q4 increases - MarketWatch (the negative Y-O-Y reference is to the current quarter)
Loose money era leaves trail of U.S. corporate debt junkies | Reuters
S&P 500 EPS growth outlook turns negative, while Q4 increases - MarketWatch (the negative Y-O-Y reference is to the current quarter)
U.S. equity funds see most inflows in 4 years in January, but ETFs see record outflows--TrimTabs - MarketWatch
Exclusive: Fed could raise rates as much as twice this year - BlackRock's Rieder | Reuters (assumes inflation picks up in the later half)
Alphabet earnings Q4 2018
Exclusive: Fed could raise rates as much as twice this year - BlackRock's Rieder | Reuters (assumes inflation picks up in the later half)
Alphabet earnings Q4 2018
+++
Trump: The Fake News President
Fact Checking the 2019 State of the Union Address - The New York Times republished by MSN at State of the Union Fact Check: What Trump Got Right and Wrong; State of the Union fact check: What's true and false in Trump's address
In dissonant State of the Union speech, Trump seeks unity while depicting ruin - The Washington Post
Trump Inaugural Committee Ordered to Hand Over Documents to Federal Investigators - The New York Times; Federal prosecutors issue sweeping subpoena for documents from Trump inaugural committee, a sign of a deepening criminal probe - The Washington Post This is not part of Mueller's investigation. It is being run out of the U.S. Attorney's Office in the S.D.N.Y.
Trump says U.S. to leave key nuclear arms treaty with Russia
Trump punches back at Senate GOP after vote rebuking his troop withdrawals from Syria, Afghanistan - Los Angeles Times
More Voter Fraud Misinformation from Trump - FactCheck.org
Fact Checking the 2019 State of the Union Address - The New York Times republished by MSN at State of the Union Fact Check: What Trump Got Right and Wrong; State of the Union fact check: What's true and false in Trump's address
In dissonant State of the Union speech, Trump seeks unity while depicting ruin - The Washington Post
Trump Inaugural Committee Ordered to Hand Over Documents to Federal Investigators - The New York Times; Federal prosecutors issue sweeping subpoena for documents from Trump inaugural committee, a sign of a deepening criminal probe - The Washington Post This is not part of Mueller's investigation. It is being run out of the U.S. Attorney's Office in the S.D.N.Y.
Trump says U.S. to leave key nuclear arms treaty with Russia
Trump punches back at Senate GOP after vote rebuking his troop withdrawals from Syria, Afghanistan - Los Angeles Times
More Voter Fraud Misinformation from Trump - FactCheck.org
1. Pares-Small Ball Strategy:
A. Sold 40 PGX at $14.14-Commission Free for Schwab Customers:
Recent History:
A. Sold 40 PGX at $14.14-Commission Free for Schwab Customers:
Recent History:
I have included in this snapshot a sell of 207+ shares at $15.055 (5/18/16). The annual average total return since 5/18/16 through yesterday was 3.58%, or less than the dividend yield. DRIP Returns Calculator | Dividend Channel
Profit Snapshot: $6.72
Quote: PGX Fund - Invesco Preferred ETF Overview
PGX calls itself a "preferred" stock fund, but owns both equity preferred stocks and exchange traded bonds. PGX's dividends will be sourced from qualified equity preferred dividend payments, non-qualified equity preferred dividends (REITs) and interest payments from bonds.
Sponsor's Website: Invesco
Last Buy Discussion: Item # 2.A. (1/16/19 Post)
Last Substantive Discussion: Item # 1.B. (11/28/18 Post)
Purchase Restriction: Small Ball (each purchase has to be at the lowest price in the chain)
Small Ball Trading Strategy:
The small ball trading strategy is primarily a risk mitigation technique. The general goal is to have less money generate more income by taking advantage of volatility.
The mechanisms employed to take advantage of volatility are mechanical.
Each new purchase has to be at the lowest price in the chain. Next, the highest cost shares will be sold at some point which lowers the average cost per share and increases the dividend yield, while creating a smaller tax liability compared to selling the entire position.
In the way that I implement this strategy, which is with small lots, commission free trades are necessary.
The strategy fits best for securities that have traded in a well defined channel and those that are in a bear market of uncertain duration.
Maximum Position: 100 Shares
Current Position: 50 Shares
Lowest Purchase Price in Chain: $13.15
Dividends: Monthly
Dividend Reinvestment: Not until I reach 100 shares
Last Sell Discussions: Item # 2 Sold 100 PGX at $13.65 (9/14/13 Post); Sold: 200 PGX at $14.38
B. Sold 108+ LXP at $9.45-Used Commission Free Trade:
Quote: Lexington Realty Trust (LXP)
LXP SEC Filings
Portfolio Map
5 Year Chart: Ugly
Profit Snapshot: +$79.9
Last Discussed: Item # 1.C. Sold 137+ LXP at $9.08 and 53 at $9.06 In 2 Separate Roth IRA Accounts (9/12/18 Post)
Rationale: I am moving closer to eliminating my position in LXP for the reasons discussed in the linked post above.
Generally, LXP keeps changing its strategy. The current one is to own more industrial properties but there are better industrial REITs that decided many years ago what they want to be when they grow up.
LXP also slashed its dividend again when it announced the disposition of office properties at a price that appeared to me favorable to the buyer. Lexington Realty Trust Announces Disposition of 21 Office Assets for $726 Million to Joint Venture
Using a stock rally to profitably dump problematic stocks is an option. I have also use the rally since last Christmas Eve to sell highest cost lots.
In the industrial property space, I currently own Dream Industrial Real Estate Investment Trust (Canada: Toronto), STAG Industrial Inc. and W. P. Carey Inc.
Last Buy Discussions: Item # 2.C. Bought 10 LXP at $7.74 (3/25/18 Post); Item 1.D. Bought 10 LXP at $7.95-Used Commission Free Trade (3/12/18 Post)
Last Substantive Discussion: Item # 3.B. Bought 10 LXP at $8.81-Used Schwab Commission Free Trade (8/19/18 Post)
LXP Trading Profits To Date: $1,908.12 ($1,828.22 in prior trades)
I still own 154 shares with an average cost of $9.4 per share and plan to sell them somewhere in the $9.75 to $10.25 range.
I would not likely restart a position north of $8.
I still own LXP senior unsecured bonds: Item # 3.A. Bought 2 Lexington Realty 4.25% SU Bonds Maturing on 6/15/23 (6/7/18 Post); Item 1.D. Bought 1 Lexington Realty 4.4% SU Bond Maturing on 6/15/24 (3/25/17 Post)
2024 LXP Bond Finra Page
2023 LXP Finra Bond Page
Rationale: I am moving closer to eliminating my position in LXP for the reasons discussed in the linked post above.
Generally, LXP keeps changing its strategy. The current one is to own more industrial properties but there are better industrial REITs that decided many years ago what they want to be when they grow up.
LXP also slashed its dividend again when it announced the disposition of office properties at a price that appeared to me favorable to the buyer. Lexington Realty Trust Announces Disposition of 21 Office Assets for $726 Million to Joint Venture
Using a stock rally to profitably dump problematic stocks is an option. I have also use the rally since last Christmas Eve to sell highest cost lots.
In the industrial property space, I currently own Dream Industrial Real Estate Investment Trust (Canada: Toronto), STAG Industrial Inc. and W. P. Carey Inc.
Last Buy Discussions: Item # 2.C. Bought 10 LXP at $7.74 (3/25/18 Post); Item 1.D. Bought 10 LXP at $7.95-Used Commission Free Trade (3/12/18 Post)
Last Substantive Discussion: Item # 3.B. Bought 10 LXP at $8.81-Used Schwab Commission Free Trade (8/19/18 Post)
LXP Trading Profits To Date: $1,908.12 ($1,828.22 in prior trades)
I still own 154 shares with an average cost of $9.4 per share and plan to sell them somewhere in the $9.75 to $10.25 range.
I would not likely restart a position north of $8.
I still own LXP senior unsecured bonds: Item # 3.A. Bought 2 Lexington Realty 4.25% SU Bonds Maturing on 6/15/23 (6/7/18 Post); Item 1.D. Bought 1 Lexington Realty 4.4% SU Bond Maturing on 6/15/24 (3/25/17 Post)
2024 LXP Bond Finra Page
2023 LXP Finra Bond Page
2. Short Term Bond/CD Ladder Basket Strategy:
Purchases: $7K
A. Bought 2 Alexandria REIT 2.75% SU Maturing on 1/15/20:
I now own 4 bonds.
FINRA Page: Bond Detail (prospectus linked)
Issuer: Alexandria Real Estate Equities Inc. (ARE)
Issuer Website: Alexandria® - Building the Future of Life Science™
Last Earnings Report: Alexandria Real Estate Q4 revenue beats; same-property cash NOI +7.6%-Seeking Alpha; Alexandria Real Estate Equities, Inc. Reports: 2018 Revenues of $1.3 billion, up 17.7% over 2017; 4Q18 Loss Per Share - Diluted of $(0.30) and 2018 EPS - Diluted of $3.52; 4Q18 and 2018 FFO - Diluted, As Adjusted, Per Share of $1.68 and $6.60; Operational Excellence and Growing Dividends
Comparison of the Bond with The Common Stock:
ARE is one of the blue chip REITs. The stock closed yesterday at $129.75. The dividend yield at that price is 2.99% or roughly equal to the YTM of this 11 month bond. The 2018 4th quarter dividend was at $.97, up 7.78% rom $.9 in the 2017 4th quarter: Dividends
It is too simple of an analysis just to say that the company will increase the stock dividend (or probably will) while the bond yield remains constant after purchase. If interest rates are higher for a one year ARE bond when this one matures, then the bond option did increase the yield, or a better option may be to go out further in time with the proceeds.
The increase in the stock dividend over the past year was also an anomaly. Over the past 20 years, the rate of growth has been at a slower rate
The quarterly common stock dividend rate was at $.5 per share in 2002. So that is not yet a double in about 16 years. My rough calculation is a 4.4% annual average growth rate or thereabouts.
Going from a 3% to 6% yield in 16 years with no promise to return my original investment is not that appealing to me now.
For my bond to produced a 4.4% increase in yield, I will need to replace it in one year with a YTM of about 3.1% in January 2020 and then 3.24% in the year starting in January 2021. That is certainly possible. The actual yield for similar maturity and credit quality paper could of course be higher or lower.
Or, I could go further out in time and wait to see how long it would take for the common stock to catch up.
The bond's coupon can not be changed short of bankruptcy while the common stock dividend could be cut or even eliminated. The option for refusing to pay interest on senior debt is bankruptcy protection. The bond will have a superior claim to assets in bankruptcy as well.
And, most importantly, the bond has a promise to pay a sum certain at a time certain.
The bond does not represent an equity interest in the business and that is important. But how important is it when the focus is on preservation of capital and income generation? The equity interest could translate into a nice capital gain, but the stock may also be lower next year and possibly much lower.
Credit Ratings:
Bought at a Total Cost of 99.8 (includes $2 commission)
YTM at TC Then at 2.966%
Current Yield at TC = 2.7555%
This purchase was sourced from the proceeds of a 15 month 1.55% CD that matured on 2/4/19:
Purchases: $7K
A. Bought 2 Alexandria REIT 2.75% SU Maturing on 1/15/20:
I now own 4 bonds.
FINRA Page: Bond Detail (prospectus linked)
Issuer: Alexandria Real Estate Equities Inc. (ARE)
Issuer Website: Alexandria® - Building the Future of Life Science™
Last Earnings Report: Alexandria Real Estate Q4 revenue beats; same-property cash NOI +7.6%-Seeking Alpha; Alexandria Real Estate Equities, Inc. Reports: 2018 Revenues of $1.3 billion, up 17.7% over 2017; 4Q18 Loss Per Share - Diluted of $(0.30) and 2018 EPS - Diluted of $3.52; 4Q18 and 2018 FFO - Diluted, As Adjusted, Per Share of $1.68 and $6.60; Operational Excellence and Growing Dividends
Comparison of the Bond with The Common Stock:
ARE is one of the blue chip REITs. The stock closed yesterday at $129.75. The dividend yield at that price is 2.99% or roughly equal to the YTM of this 11 month bond. The 2018 4th quarter dividend was at $.97, up 7.78% rom $.9 in the 2017 4th quarter: Dividends
It is too simple of an analysis just to say that the company will increase the stock dividend (or probably will) while the bond yield remains constant after purchase. If interest rates are higher for a one year ARE bond when this one matures, then the bond option did increase the yield, or a better option may be to go out further in time with the proceeds.
The increase in the stock dividend over the past year was also an anomaly. Over the past 20 years, the rate of growth has been at a slower rate
The quarterly common stock dividend rate was at $.5 per share in 2002. So that is not yet a double in about 16 years. My rough calculation is a 4.4% annual average growth rate or thereabouts.
Going from a 3% to 6% yield in 16 years with no promise to return my original investment is not that appealing to me now.
For my bond to produced a 4.4% increase in yield, I will need to replace it in one year with a YTM of about 3.1% in January 2020 and then 3.24% in the year starting in January 2021. That is certainly possible. The actual yield for similar maturity and credit quality paper could of course be higher or lower.
Or, I could go further out in time and wait to see how long it would take for the common stock to catch up.
The bond's coupon can not be changed short of bankruptcy while the common stock dividend could be cut or even eliminated. The option for refusing to pay interest on senior debt is bankruptcy protection. The bond will have a superior claim to assets in bankruptcy as well.
And, most importantly, the bond has a promise to pay a sum certain at a time certain.
The bond does not represent an equity interest in the business and that is important. But how important is it when the focus is on preservation of capital and income generation? The equity interest could translate into a nice capital gain, but the stock may also be lower next year and possibly much lower.
Credit Ratings:
Bought at a Total Cost of 99.8 (includes $2 commission)
YTM at TC Then at 2.966%
Current Yield at TC = 2.7555%
This purchase was sourced from the proceeds of a 15 month 1.55% CD that matured on 2/4/19:
B. Bought 5 Six Month Treasury Bills at Auction:
IR = 2.505%
Auction Results: 2/4/19
IR = 2.505%
A. Sold 60 SLV at $15.18-Commission free for Fidelity Customers:
Profit Snapshot: $32.62
Quote: iShares Silver Trust Overview
Closing Price Yesterday: SLV $14.87 -$0.01 -0.07%
Last Discussed: Item # 3.A. Added 10 SLV at $13.34 (9/26/18 Post)
SLV Chart: Long Term Bear Market
SLV Trading Profits 2017 to Date: $253.04
Rationale: I am finding it difficult to trade precious metals that have been in a long term secular bear market since 2011. I will likely reenter when the price is below my lowest price paid in the 60 share lot discussed above which was $13.34. This last trade gets rid of my higher cost shares bought at $15.4: Item # 2.C. Bought 30 SLV at $15.4 (5/3/18)
4. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Bought 1 Ventas LTD Partnership 3.25% SU Bond Maturing on 10/15/26:
I now own 4 bonds.
I have 4 Ventas bonds maturing on 4/1/20 so I am moving out the maturity range in anticipation of those redemption proceeds.
FINRA Page: Bond Detail (prospectus not linked)
Prospectus
Issuer: Operating Entity of Ventas Inc. (VTR) who guarantees the notes.
Ventas SEC Filings
10-Q for the Q/E 9/30/18
Website
Ventas Announces $1 Billion Commercial Paper Note Program (1/17/19)
Bought at a Total Cost of 94.205
YTM at TC Then at 4.137%
Current Yield at 3.45%
Unlike ARE, VTR's common stock does offer a yield advantage to this bond at current prices. Based on yesterday's closing price, the yield is about 4.93%. The 52 week price range is very broad at $46.55 to $65.7, with a close yesterday at $64.31. Given my capital preservation mode, however, I am not likely to buy a REIT that is near its 52 week high with a price range that broad. I would consider a purchase in the $50 to $55 range, assuming no material adverse change in the business.
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.
Rates haven't inverted. They always invert before a recession and crash. Doesn't that mean we aren't there yet.
ReplyDeleteBest to invest if you need to be owning stocks (i.e. asset growth focused.)?
Land: Given the current bond and CD yields, they are not an option for those who need to grow assets. Those securities fall into the asset preservation category.
DeleteOver a long period of time, stocks are the way to go to grow assets in financial markets.
This website has the yearly returns of stocks, treasury bills and the ten year treasury note:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
The problems are what I call situational risk and the relatively short time span of an individual's life.
It is one thing to look at yearly returns since 1928 and another to focus on a ten year period late in life when a long term secular bear market in stocks may wreck the capital growth plan.
I mentioned a 6 month treasury bill purchase in this post that has an "investment rate" of 2.505%.
The real rate of return will likely be closer to .5% using an anticipated CPI rate over the bill's life.
If I reduce the return by taxes, since I bought that bill in a taxable account, the real return after taxes, the bogey that matters, is close to zero.
That purchase is purely a preservation of capital one that will earn me a positive return after taxes since my inflation rate is lower than the CPI rate published by BLS and my marginal tax rate is lower now with no earned income.
What I do is not primarily a capital growth strategy since I do not need to grow capital.
I will end up generating capital gains as a supplement to my dividend and interest income. That can be a consequential number depending on the year. My best trading year out of the last 5 was in 2017 when my schedule D had capital gains (including long term capital gain distributions from funds) of $48+K. I don't want you to think that I am entirely buried in a bunker waiting for incoming.
I may struggle to hit my annual average bogey of $15K to $25K in realized capital gains this year unless I sell a mutual fund. My trading so far is generating infinitesimally small gains as I jettison just some of my highest cost odd lots or stocks that I do not want to own like LXP discussed above.
I do have some juice in my portfolio outside of bonds and CDs.
I can only point out that stocks are potentially dangerous for those who have situational risks. However, there can be a greater risk by attempting to grow capital with short term instruments that promise to return capital at a time certain since the returns will leave the household way short of where they need to be.
Since I started to invest in the 1960s, I experienced one of those periods early on, but it did not matter to me then. A prolonged bear market in stocks for someone who has already retired or will soon retire, and who has to spend savings to meet expenses, is not something that will work out well.
Thank you for laying all that out.
DeleteI don't really have any questions. Just took it in...
I suppose right now it's hard to tell if this is the moment of risk of decline or the risk of being left behind on inflation. It may stay in the trading range of uncertainty for a while too.
DGI seems like one of the better hedges for both situations.
The one year chart for SPX currently shows the 200 day SMA line at 2,742. That line is so far proving to have some resistance to breaking it. On Monday and Tuesday, the S & P hit intra-day highs of 2,738.98 and 2,738.08 respectively before closing off those highs.
ReplyDeleteS&P 500 at 2,732.14 -5.56 (-0.20%)
As of 12:27PM EST
I have been doing some light paring into this latest rally. It remains to be see whether the parabolic move up since Christmas Eve is a bear trap with the market preparing to go into a long term bear market, a move within a broad trading range near exhaustion, or a move that will take SPX to new highs. My current guess is that the parabolic counter move up is near the top of a new trading range that will last a year or more.
I wasn't expecting the 200 day to be a resistance. Apparently it is in the algos. Now I know.
DeleteCurrently the futures are using good news on the lack of shutdown to rally.
Land: The 200 day SMA line has moved up slightly since I noted it as a resistance line. At yesterday's close, and using a 1 year SPX chart, the 200 day line is at 2,743.2. That line may be challenged today.
DeleteI mentioned in a prior comment that even Trump would be reluctant to shut down the government again. The GOP was blamed by a majority of voters for the last one.
And, many taxpayers are upset that their tax refunds are lower or they unexpectedly owe more taxes. And there will be another tax filing season a few months before the next election. There are various reasons for that result. The permanent one, impacting about 10% of households, is that they will pay more taxes due mostly to the new limitation on deducting state income and property taxes, capped at $10K.
It would not be a good idea politically for the GOP to inflame even more people leading up to 2020. They are already in trouble before the shutdown happened.
Does the reduced flow of money from tax return season... look like it could add meaningfully to a slowing of the economy?
DeleteI'm paying 23% more. I can pay the increase on my state (if take standard deduction) or fed (if itemize). It's required to pick the same method for both.
I'm wondering if those figuring out the stats have taken these types of artifacts into account yet.
Regardless for this year in particular, weekly deductions were adjusted so people got more all along, so now will get less back - much more than will pay more taxes in the long run. So is that like when we all got $250 bonus from Bush, but in reverse?
Land: Many households will receive a lower tax refund for the reason mentioned in your less paragraph. The tax cuts were small for most households and the savings were spread out over an entire year through the level of tax withholding in each paycheck.
DeleteThe lower level of tax refunds may temporarily restrain spending some, but consumers are back spending borrowed money so it is hard to predict the impact of lower tax refunds.
Since I paid estimated taxes quarterly based on 100% of last years income, and my income went down this year due to somewhat lower capital gains, I will receive a tax return. I do not itemize. Property taxes on my home are about $2,200 per year and have not changed much over the past 10 years. The City of Brentwood component of that amount has been unchanged for over 20 years. And, there is no state income tax except a small one on some dividend and interest income that is about to disappear altogether. I minimize that tax now by owning Tennessee municipals, CDs, and treasuries whose interest payments are not included in that state tax. So I come nowhere near itemizing.
Many living in states with high property and state income taxes will pay more. I doubt that the tax reduction has impacted me at all other than through increased dividends made possible through the corporate income tax reduction and stock gains linked to the same.
There is also a hidden tax increase that will cause a tax increase for many households compared to the old law. The GOP changed how the inflation adjustment raises brackets in a manner that will cause those adjustments to be lower than under prior law. Within a few years, that will catch up with most households and cause their taxes to go up based on other variables remaining the same (income, deductions, etc.) The Trumpsters will not notice that kind of tax increase on them.
https://www.cpapracticeadvisor.com/news/12429780/bloomberg-tax-projects-smaller-post-tax-reform-inflation-adjustments
So between borrowing, and so many other factors right now...it'd be hard pressed to assume taxes will have an impact.
DeleteI forgot about the increase. Grrrr. I sure hope it's not on top of my 23% increase already.
I'm hoping at some point a real Congress has real sessions figuring out a new better tax bill. Maybe one without scribbled pages, and tax breaks for owning a helicopter.
Looks like market moved decisively above the 200 day. Then is now moving back down.
DeleteMakes a lot of sense to be coming down, but the act of going above seems to indicate bullish mind set is still dominate.
We aren't shutting down. Well sounds like. Trump lost capital with that, so wasn't expected him to do it again.
Now he's saying he'll do a state of emergency. I still think this is about reconnaissance for Putin. An excuse to ask questions without suspicion. It will go to court & house can block it. But what a topic to waste time & energy on!
"Conservatives" will applaud Donald declaring a state of emergency and then appropriating funds allocated by Congress to other programs to build the wall.
DeleteAny true conservative would be appalled by that action, viewing it as an unconstitutional usurpation of powers granted to Congress in the Constitution. Such an action is only consistent with the Imperial Presidency concept, first articulated by Arthur S Arthur Schlesinger in his book "The Imperial Presidency" published in 1973.
https://www.amazon.com/Imperial-Presidency-Jr-Arthur-Schlesinger-ebook/dp/B0085TKO04
Since that time, Presidential encroachment on the powers granted by the Constitution to Congress. That movement is toward an authoritarian form of government which is consistent with Trump's personality, thousands of his statements, and overall irritation with the constitutional limitations on presidential power.
If he declares a national emergency and appropriates money to build the wall, I would regard that action as an impeachable offense, which is the conservative position on that kind of issue.
If successful, there are hundreds of other issues where the President could declare a national emergency and pass laws by executive order.
South Gent,
ReplyDeleteRe. upward mobility
“For many households, the key would be to first move from where they are now to somewhere else where there is opportunity. ..... The first generation may not drastically change their economic circumstances, but the second generation would have a better chance….”
Bravo. If one can’t move oneself, send the next generation to where there is opportunity.
That’s a shot at upward mobility! It still requires "good judgment, a willingness to take risks, business savvy ....".
Regional banks are bucking the downtrend today for a reason unrelated to their fundamentals.
ReplyDeleteSPDR S&P Regional Banking ETF
$54.48 +0.60 +1.11%
Last Updated: Feb 7, 2019 at 12:36 p.m. EST
https://www.marketwatch.com/investing/fund/kre
The acquisitive BBT announced today that it will acquire another super regional SunTrust (STI).
https://www.reuters.com/article/us-suntrust-banks-m-a-bb-and-t/bbt-to-buy-suntrust-in-biggest-u-s-bank-deal-in-a-decade-idUSKCN1PW156
SunTrust Banks Inc. $63.70 +$4.95 8.44%
I do not own STI and sold my BBT shares last year.
I do own a STI bond.
Some of the larger regional banks like HBAN and CFG are moving up in response.
The decline today was due to several negative news items.
ReplyDeleteLarry Kudlow, who is normally overly optimistic, stated that there was "a pretty sizable distance to go" in the China trade negotiations.
https://www.foxbusiness.com/economy/us-china-still-miles-apart-from-reaching-trade-agreement-white-house-adviser-says
Trump said there would not be a meeting between him and the Chinese President Xi Jinping before the March 1 deadline.
https://www.reuters.com/article/us-usa-trade-china/trump-says-he-and-chinas-xi-will-not-meet-before-march-1-trade-deadline-idUSKCN1PW223
Earlier in the day, that item was reported as sourced from WH sources.
The Bank of England stated that growth will slow to 1.2% this year.
https://www.bloomberg.com/news/articles/2019-02-07/boe-cuts-forecasts-says-brexit-damage-to-economy-has-risen
Great Britain's economy could easily enter a recession this year even with a smooth Brexit which appears doubtful.
https://www.bloomberg.com/news/articles/2019-02-07/may-is-said-to-seek-time-limit-on-contentious-brexit-backstop
The EU slashed forecasts for growth due in part to a slowdown in trade with China. The new forecast calls for 1.1% growth from the previous forecast of 1.8%.
https://www.bloomberg.com/news/articles/2019-02-07/italy-germany-drag-on-euro-area-economy-as-eu-slashes-outlook
Last month, the German statistical agency calculated 2018 growth at 1.5% in 2018, down from 2.2% in 2017:
https://www.cnbc.com/2019/02/07/germany-economy-raises-fears-as-european-commission-lowers-forecasts-.html
I noted in a previous comment that SPX made two moves toward its 200 day SMA line and turned back both times before reaching that line.
All of those factors will likely cause more volatility with a downside bias IMO that will last for more than just today.
There was a slight flight to safety into treasuries:
iShares 7-10 Year Treasury Bond ETF
$104.47 +$0.34 +0.33%
https://www.marketwatch.com/investing/fund/ief
Longer duration treasuries performed better than the shorter term ones:
iShares 20+ Year Treasury Bond ETF
$121.83 +$0.80 +0.66%
https://www.marketwatch.com/investing/fund/tlt
Longest duration:
PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF
$113.61 +1.08 +0.96%
https://www.marketwatch.com/investing/fund/zroz
Equity REITs were a bright spot:
Vanguard Real Estate ETF
$84.12 +$0.69 +0.83%
https://www.marketwatch.com/investing/fund/vnq
Well that was spot on. :).
DeleteSouth Gent,
ReplyDeleteIf EU and UK continue to slow down, would that provide some potential opportunities while USD is strong?
Y: The EUR/USD is stuck in a narrow trading range between 1.15 to 1.2 since April 2018 :
Deletehttps://www.xe.com/currencycharts/?from=EUR&to=USD&view=1Y
Over the near term, I do not anticipate that the currency exchange rate will meaningfully add or subtract from the prices of European stock ADRs where the ordinary shares are price in Euros.
The British Pound may decline against the USD but the recent action in the GBP/USD suggests that the BREXIT problems are not now impacting the exchange rate:
https://www.xe.com/currencycharts/?from=GBP&to=USD&view=1Y
European stock ETFs have significantly underperformed SPX over the past 1, 3, 5, and 10 years using the Vanguard FTSE Europe ETF (VGK) as the proxy.
http://performance.morningstar.com/funds/etf/total-returns.action?t=VGK®ion=USA&culture=en_US
The 5 year annual average total return for VGK through yesterday was 1.19% compared to SPY at 10.67%.
European stocks will have their day in the sun, but I doubt that a growth slowdown and possible recessions in several countries developing within a year or so will provide the impetus for meaningful out performance vs. U.S. stocks.
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2019/02/observations-and-sample-of-recent_9.html