Economy:
The current inflation numbers do not support further increases in the FF rate IMO.
The government reported yesterday that the non-seasonally adjusted CPI rose only 1.5% over the past 12 months through February 2019. Consumer Price Index Summary Core CPI rose 2.1% over the same period but has been drifting down some.
Consumer credit picks up a bit in January - MarketWatch
The current inflation numbers do not support further increases in the FF rate IMO.
The government reported yesterday that the non-seasonally adjusted CPI rose only 1.5% over the past 12 months through February 2019. Consumer Price Index Summary Core CPI rose 2.1% over the same period but has been drifting down some.
Trump's budget will project 3% GDP growth over the next few years, defying consensus Trump is predicting that real GDP will grow 3.2% in 2019 compared to 2018.
I am currently predicting 1.75% to 2.25% real GDP growth this year. I am expecting a rebound after the first quarter but less strong compared to 2016-2018. A repeat of 2013, where growth slowed in the last two quarters, remains a possibility, more so now than in the previous three years IMO.
As usual, I view the SPX GAAP and Non-GAAP E.P.S. forecasts for 2019 as being too optimistic, but that is hardly surprising.
There have been periods when the Stock Jocks became so pessimistic that their future SPX E.P.S. forecasts go too far in the other direction. The mind set in those periods is that it is bad, going to get worse, and will never get any better within the outer most time frame that the Stock Jocks can contemplate or view as useful to them. The most recent manic depressive state occurred in 2008 and into 2009.
At the extremes, the Stock Jocks could be diagnosed with something similar to Bipolar Affective Disorder. Bipolar Disorder Signs, Symptoms, and Treatments - Psycom
Lighthizer says U.S.-China trade talks 'making headway' on key issues - MarketWatch
Turkish economy contracts by 3% in fourth quarter - MarketWatch
It looks like the U.K. is headed for a hard BREXIT. Brexit deal rejected again The departure is currently scheduled for March 29. I see no good reason why the EU would grant a delay since those supporting BREXIT never had a clue about how to successfully engineer the separation without causing serious harm to the U.K. economy.
I am currently predicting 1.75% to 2.25% real GDP growth this year. I am expecting a rebound after the first quarter but less strong compared to 2016-2018. A repeat of 2013, where growth slowed in the last two quarters, remains a possibility, more so now than in the previous three years IMO.
As usual, I view the SPX GAAP and Non-GAAP E.P.S. forecasts for 2019 as being too optimistic, but that is hardly surprising.
There have been periods when the Stock Jocks became so pessimistic that their future SPX E.P.S. forecasts go too far in the other direction. The mind set in those periods is that it is bad, going to get worse, and will never get any better within the outer most time frame that the Stock Jocks can contemplate or view as useful to them. The most recent manic depressive state occurred in 2008 and into 2009.
At the extremes, the Stock Jocks could be diagnosed with something similar to Bipolar Affective Disorder. Bipolar Disorder Signs, Symptoms, and Treatments - Psycom
Lighthizer says U.S.-China trade talks 'making headway' on key issues - MarketWatch
Turkish economy contracts by 3% in fourth quarter - MarketWatch
It looks like the U.K. is headed for a hard BREXIT. Brexit deal rejected again The departure is currently scheduled for March 29. I see no good reason why the EU would grant a delay since those supporting BREXIT never had a clue about how to successfully engineer the separation without causing serious harm to the U.K. economy.
+++++
Markets and Market Commentary:
Just 10 stocks have accounted for 25% of the bull market's return Apple contributed to 20% of the S & P 500 return over the past decade.
Just 10 stocks have accounted for 25% of the bull market's return Apple contributed to 20% of the S & P 500 return over the past decade.
Investor credited with calling the 2008 crisis says the next 20 years in the stock market will ‘break a lot of hearts’ - MarketWatch
Shale drillers cut spending, raising questions about US oil output; US threatens to topple Saudi Arabia as world's top oil exporter: IEA
Shale drillers cut spending, raising questions about US oil output; US threatens to topple Saudi Arabia as world's top oil exporter: IEA
++++++
Trump:
Nancy Pelosi on impeaching President Trump: ‘He’s just not worth it’ - The Washington Post
Pelosi opposes impeaching Trump absent “something so compelling and overwhelming and bipartisan." The last word is the key to her position.
Pelosi is taking the correct approach IMO.
She is basically saying that the evidence supporting impeachment has to be so compelling that several republican senators would view impeachment as necessary, which was the case during the Nixon impeachment process. In 1974, Goldwater and Rhodes told Nixon he was doomed
Senate republicans now lack the integrity that existed in many of them in 1974, so far more compelling proof of even more serious impeachable offenses would be needed now to convince a few republican senators to support Trump's impeachment.
Pelosi is implying that evidence relating to campaign reporting violations and what is known now about Trump's obstruction efforts does not meet that high standard. I would agree with that assessment since I believe that no republican senator would vote for impeachment based on what is known now. Republicans have already distorted Pelosi's comments in their spin machine. Rep. Kevin McCarthy says Pelosi confirms Trump take on Mueller probe
While the republicans wanted to impeach Clinton for lying about having sex with Monica, I viewed that attempt as divisive and unnecessarily polarizing since the republicans had no chance whatsoever to secure Democrat votes in the Senate for those charges and they knew it before commencing the impeachment process in the House. The Democrats need to behave more responsibly.
Trump is unfit to be President, but that was obvious before the election and has become even more so since his inauguration, except to the Trumpsters of course.
Has Trump committed impeachable offenses? Trump has probably committed several during his Presidency, but either the proof and/or the offenses are not sufficient so far to convince a single republican senator to vote for impeachment even though the evidence now on obstruction is comparable to what existed in 1974.
The correct alternative is to pursue investigations and conduct hearings. Just lay everything on the table before the next Presidential election. Evidence will not convince the Trumpsters, of course, but there are still enough swing voters who are reachable with accurate information.
++
Nancy Pelosi on impeaching President Trump: ‘He’s just not worth it’ - The Washington Post
Pelosi opposes impeaching Trump absent “something so compelling and overwhelming and bipartisan." The last word is the key to her position.
Pelosi is taking the correct approach IMO.
She is basically saying that the evidence supporting impeachment has to be so compelling that several republican senators would view impeachment as necessary, which was the case during the Nixon impeachment process. In 1974, Goldwater and Rhodes told Nixon he was doomed
Senate republicans now lack the integrity that existed in many of them in 1974, so far more compelling proof of even more serious impeachable offenses would be needed now to convince a few republican senators to support Trump's impeachment.
Pelosi is implying that evidence relating to campaign reporting violations and what is known now about Trump's obstruction efforts does not meet that high standard. I would agree with that assessment since I believe that no republican senator would vote for impeachment based on what is known now. Republicans have already distorted Pelosi's comments in their spin machine. Rep. Kevin McCarthy says Pelosi confirms Trump take on Mueller probe
While the republicans wanted to impeach Clinton for lying about having sex with Monica, I viewed that attempt as divisive and unnecessarily polarizing since the republicans had no chance whatsoever to secure Democrat votes in the Senate for those charges and they knew it before commencing the impeachment process in the House. The Democrats need to behave more responsibly.
Trump is unfit to be President, but that was obvious before the election and has become even more so since his inauguration, except to the Trumpsters of course.
Has Trump committed impeachable offenses? Trump has probably committed several during his Presidency, but either the proof and/or the offenses are not sufficient so far to convince a single republican senator to vote for impeachment even though the evidence now on obstruction is comparable to what existed in 1974.
The correct alternative is to pursue investigations and conduct hearings. Just lay everything on the table before the next Presidential election. Evidence will not convince the Trumpsters, of course, but there are still enough swing voters who are reachable with accurate information.
++
Trump claimed that Judge T.S. Ellis found “there was no collusion with Russia.” Trump later published this tweet:
This is what Judge Ellis, a Reagan appointee who did what he could to help Manafort in his criminal trial, actually said that Manafort was “not before this court for anything having to do with collusion with the Russian government to influence this election.” That matter was not even a subject of the trial.
This is just one of thousands of examples where Donald will lie even when it is incontrovertible that he is lying. Brazen lying is just part of his pathology.
The extraordinary bias of the judge in the Manafort trial - The Washington Post (8/16/18); Judge in Manafort trial admits he made mistake that could hurt Mueller - Business Insider; Judge in the Manafort trial is creating some big problems | TheHill
It was not surprising that this republican judge claimed that Manafort had “lived an otherwise blameless life”, a remarkable claim given the facts, in justifying a sentence of less than 4 years when the sentencing guidelines called for 19 to 24 years.
It looks like Ann Coulter has lost favor with Demagogue Don. Calling the "Stable Genius" an "idiot" is not the way to curry favor with the Orange King. Ann Coulter: "The Only National Emergency Is That Our President Is An Idiot" | Video | RealClearPolitics
Trump calls Coulter 'Wacky Nut Job' -CNN
I miss the America where our President did not act and speak like a mean spirited five year old brat. But, admittedly, the Duck does know how to effectively communicate with the Trumpsters.
+++++++
1. Short Term Bond/CD Ladder Basket Strategy:
A. Bought 2 Discovery Communications 2.2% SU Maturing on 9/20/19:
I now own 4 bonds. I will recoup the $18.94 in interest paid to the seller when Discovery makes its semi-annual interest payment this month.
Finra Page: Bond Detail (prospectus not linked)
This bond was sold as part of a huge bond offering with several maturities:
The money was raised to fund the cash portion of Discovery's acquisition of Scripps Interactive which owned the cable channels Food Network, HGTV, DIY Network (Do-It-Yourself), Cooking Channel, Great American County, and the Travel Channel. Those channels are among those that I would exclude when and if I can choose a la carte. I do not view the acquisition as a wise one at the price paid.
Issuer: Discovery Inc. Series A (DISCA)
Subsequent to Discovery's acquisition of Scripps Network Interactive, the name was changed to Discovery, Inc.
Credit Ratings:
I have no concerns about Discovery paying off the principal next September. Since this company is debt heavy, and is facing long term secular headwinds I am buying only short term bonds. Long term debt was at $15.829B as of 9/30/18.
Bought at a Total Cost of 99.6
YTM at TC Then at 2.912%
Current Yield at 2.201%
The important yield number is YTM given the short maturity. I will receive two semi-annual interest payments with the last one paid with the principal amount.
I have 2 Scripps Network 2.75% SU bonds maturing on 11/15/19. I will wait until that one is redeemed by Discovery before buying more.
B. Bought 1 Paccar Financial 2.5% SU Maturing on 8/14/20:
This is a rollover using the proceeds from another Paccar SU bond that recently matured.
This note can not be redeemed prior to the maturity date.
FINRA Page: Bond Detail (prospectus linked)
Issuer: Paccar Financial, a wholly owned subsidiary of Paccar (PCAR)
PCAR Analyst Estimates
PCAR 2018 Annual Report:
PACCAR Achieves Record Annual Revenues and Net Income | Business Wire
Credit Ratings:
Bought at a Total Cost of 99.508
YTM at TC Then at 2.844%
Current Yield at TC = 2.5124%
C. Bought 1 Treasury 1% Coupon Maturing on 11/15/19 (filler):
YTM = 2.496%
D. Bought 1 Treasury 1.375% Coupon Maturing 12/15/19 (filler):
YTM = 2.5%
I now own 2 bonds.
Based on closing prices from yesterday, the 6 month treasury bill provided the highest yield in the one month to 7 year maturing range.
Daily Treasury Yield Curve Rates
Reading the tea leaves, the Bond Ghouls are saying that a .25% reduction in the FF is likely within 12 months. That consensus is reflected both in the current yield curve and the recent slight decline in one year treasury bill or longer short term rates. (1 year bill has fallen from 2.7% as of 12/12/18 to 2.53% yesterday).
2. Pares and Eliminations:
I sold my highest cost TPVG lots in two accounts.
Quote: TriplePoint Venture Growth BDC Corp. (TPVG)
Closing Price Yesterday: TPVG $13.34 -$0.15 -1.11%
I discussed the third quarter earnings report in this post: Item # 4.A. Bought 50 TPVG at $12.11-In A Roth IRA Account (12/5/18 Post)
Dividends: Quarterly at $.36 per share ($1.44 annually)
Next Ex Dividend Date: 3/19/19
Special Dividends: $.1 per share with a 12/19/18 ex dividend date
TriplePoint Venture Growth BDC Corp. Announces Special Distribution of $0.10 per Share
Website: TriplePoint Venture Growth
TPVG SEC Filings
Subsequent to these pares, TPVG released its 4th quarter report which was IMO a good one considering the headwinds faced by BDCs during that quarter:
TriplePoint Venture Growth BDC Corp. Announces Fourth Quarter and Fiscal Year 2018 Financial Results; CEO James Labe on Q4 2018 Results - Earnings Call Transcript | Seeking Alpha
A. Sold 40 TPVG at $13.44-Schwab Account:
I selected the highest cost shares to sell. Those shares consisted of a 30 share lot bought at $13.28 and a 10 share lot bought at $13.01+. To pare the position by selling the highest cost lots, I could not use FIFO accounting since the first lot was purchased at $10.61.
Profit Snapshot: $4.13
Average Cost Per Share Reduced from $12.14 to $11.78
Dividend Yield at New TC = 12.22%
Rationale: The small profit realization is consistent with my goal for BDCs and other unfavored niche income categories.
The general idea has been, and always will be to earn a total return in excess of the dividend yield. That is easier said than done.
Realizing a small gain on the highest cost lots is consistent with that goal. I lower my average cost per share that makes it more likely that I will achieve that total return goal. The flip side of selling the highest cost lots is to buy more shares when the price falls below the lowest price paid in the chain.
Although I did not know the net asset value per share as of 12/31/18 when I sold the lots, I suspected that the sell prices ($13.44 and $13.39) were close to that value which turned out to be $13.5 per share.
Most Recent Purchase Discussions: Item # 4.A. Bought 50 TPVG at $12.11-In A Roth IRA Account (12/5/18 Post); Item # 3 D. Bought 10 TPVG at $11.2-Used Commission Free Trade (1/9/19 Post)
B. Sold 50 TPVG at $13.39-Vanguard Roth IRA:
History:
Profit Snapshot: $4.49
Average Cost Per Share Reduced to $12.25
Dividend Yield at New TC (excludes special dividends): 11.76%
TPVG Trading Profits To Date: $246.18 ($237.56 prior trades)
Prior Sell Discussions: I sold 50 shares at $13.39: Item 2.B. (3/4/2017 Post)(snapshot realized gain= $153.08).
I sold earlier in 2017 a 50 share lot at $12.33, realizing a $84.48 gain. Item # 3 (1/16/17 Post) I discussed purchasing that lot at $10.61 in Comment Blog # 3-South Gent | Seeking Alpha
Total Remaining Position: 210+ shares
C. Pared ORIT Again-Sold 30 shares at $17.90 (used commission free trade):
Quote: Oritani Financial Corp. (ORIT)
Category: REGIONAL BANK BASKET STRATEGY
Closing Price Yesterday: ORIT $17.48 -$0.11 -0.63%
I sold my highest cost lots that I bought in the market. The shares purchased with the recent dividend payment had a higher cost basis.
Profit: $61.06
Position Before Pare: Average Cost Per share = $15.49
Position After Pare: Average Cost Per Share = $15.32
Dividend Yield at $15.32 (excludes special dividends) = 6.53%
I am done paring the ORIT position in this account. The next transaction will be a purchase when and if the price falls below the lowest price paid in the chain.
This kind of strategy is very methodical. In effect, it is buy the dips and sell the rips within certain price ranges. The low band is below the lowest price paid in the chain. The highest cost lots will be sold on pops when and if it is profitable to do so.
Purchase Restriction: Small Ball Rule
Lowest Price in Chain-This Account: $15.1
Item #1.B. Bought 10 ORIT at $15.1 Used Fidelity Commission Free Trade (10/31/18)
Last Substantive Discussion: Item # 4.A. Sold ORIT at $17.08 (2/17/19 Post)
Remaining ORIT Position All Accounts: 212+ shares
D. Eliminated the ETF CHIQ-Sold 71+ Shares at $16.04-Commission Free ETF for Vanguard Brokerage Customers:
Quote: Global X MSCI China Consumer Discretionary ETF Overview
Sponsor's Page: MSCI China Consumer Discretionary ETF
Closing Price Yesterday: CHIQ $16.08 +$0.01 +0.04%
Profit Snapshot: +$94.59
Last Discussed: Item # 3.B. Bought 10 CHIQ at $12.8 (1/27/19 Post)
3. Intermediate Term Bond/CD Ladder Basket Strategy:
I have 2 Scripps Network 2.75% SU bonds maturing on 11/15/19. I will wait until that one is redeemed by Discovery before buying more.
B. Bought 1 Paccar Financial 2.5% SU Maturing on 8/14/20:
This is a rollover using the proceeds from another Paccar SU bond that recently matured.
This note can not be redeemed prior to the maturity date.
FINRA Page: Bond Detail (prospectus linked)
Issuer: Paccar Financial, a wholly owned subsidiary of Paccar (PCAR)
PCAR Analyst Estimates
PCAR 2018 Annual Report:
Credit Ratings:
YTM at TC Then at 2.844%
Current Yield at TC = 2.5124%
C. Bought 1 Treasury 1% Coupon Maturing on 11/15/19 (filler):
YTM = 2.496%
D. Bought 1 Treasury 1.375% Coupon Maturing 12/15/19 (filler):
YTM = 2.5%
I now own 2 bonds.
Based on closing prices from yesterday, the 6 month treasury bill provided the highest yield in the one month to 7 year maturing range.
Daily Treasury Yield Curve Rates
Reading the tea leaves, the Bond Ghouls are saying that a .25% reduction in the FF is likely within 12 months. That consensus is reflected both in the current yield curve and the recent slight decline in one year treasury bill or longer short term rates. (1 year bill has fallen from 2.7% as of 12/12/18 to 2.53% yesterday).
2. Pares and Eliminations:
I sold my highest cost TPVG lots in two accounts.
Quote: TriplePoint Venture Growth BDC Corp. (TPVG)
Closing Price Yesterday: TPVG $13.34 -$0.15 -1.11%
I discussed the third quarter earnings report in this post: Item # 4.A. Bought 50 TPVG at $12.11-In A Roth IRA Account (12/5/18 Post)
Dividends: Quarterly at $.36 per share ($1.44 annually)
Next Ex Dividend Date: 3/19/19
Special Dividends: $.1 per share with a 12/19/18 ex dividend date
TriplePoint Venture Growth BDC Corp. Announces Special Distribution of $0.10 per Share
Website: TriplePoint Venture Growth
TPVG SEC Filings
Subsequent to these pares, TPVG released its 4th quarter report which was IMO a good one considering the headwinds faced by BDCs during that quarter:
TriplePoint Venture Growth BDC Corp. Announces Fourth Quarter and Fiscal Year 2018 Financial Results; CEO James Labe on Q4 2018 Results - Earnings Call Transcript | Seeking Alpha
I selected the highest cost shares to sell. Those shares consisted of a 30 share lot bought at $13.28 and a 10 share lot bought at $13.01+. To pare the position by selling the highest cost lots, I could not use FIFO accounting since the first lot was purchased at $10.61.
Profit Snapshot: $4.13
Average Cost Per Share Reduced from $12.14 to $11.78
Dividend Yield at New TC = 12.22%
Rationale: The small profit realization is consistent with my goal for BDCs and other unfavored niche income categories.
The general idea has been, and always will be to earn a total return in excess of the dividend yield. That is easier said than done.
Realizing a small gain on the highest cost lots is consistent with that goal. I lower my average cost per share that makes it more likely that I will achieve that total return goal. The flip side of selling the highest cost lots is to buy more shares when the price falls below the lowest price paid in the chain.
Although I did not know the net asset value per share as of 12/31/18 when I sold the lots, I suspected that the sell prices ($13.44 and $13.39) were close to that value which turned out to be $13.5 per share.
Most Recent Purchase Discussions: Item # 4.A. Bought 50 TPVG at $12.11-In A Roth IRA Account (12/5/18 Post); Item # 3 D. Bought 10 TPVG at $11.2-Used Commission Free Trade (1/9/19 Post)
B. Sold 50 TPVG at $13.39-Vanguard Roth IRA:
History:
Profit Snapshot: $4.49
Average Cost Per Share Reduced to $12.25
Dividend Yield at New TC (excludes special dividends): 11.76%
TPVG Trading Profits To Date: $246.18 ($237.56 prior trades)
Prior Sell Discussions: I sold 50 shares at $13.39: Item 2.B. (3/4/2017 Post)(snapshot realized gain= $153.08).
I sold earlier in 2017 a 50 share lot at $12.33, realizing a $84.48 gain. Item # 3 (1/16/17 Post) I discussed purchasing that lot at $10.61 in Comment Blog # 3-South Gent | Seeking Alpha
Total Remaining Position: 210+ shares
C. Pared ORIT Again-Sold 30 shares at $17.90 (used commission free trade):
Quote: Oritani Financial Corp. (ORIT)
Category: REGIONAL BANK BASKET STRATEGY
Closing Price Yesterday: ORIT $17.48 -$0.11 -0.63%
I sold my highest cost lots that I bought in the market. The shares purchased with the recent dividend payment had a higher cost basis.
Profit: $61.06
Position Before Pare: Average Cost Per share = $15.49
Position After Pare: Average Cost Per Share = $15.32
Dividend Yield at $15.32 (excludes special dividends) = 6.53%
I am done paring the ORIT position in this account. The next transaction will be a purchase when and if the price falls below the lowest price paid in the chain.
This kind of strategy is very methodical. In effect, it is buy the dips and sell the rips within certain price ranges. The low band is below the lowest price paid in the chain. The highest cost lots will be sold on pops when and if it is profitable to do so.
Purchase Restriction: Small Ball Rule
Lowest Price in Chain-This Account: $15.1
Item #1.B. Bought 10 ORIT at $15.1 Used Fidelity Commission Free Trade (10/31/18)
Last Substantive Discussion: Item # 4.A. Sold ORIT at $17.08 (2/17/19 Post)
Remaining ORIT Position All Accounts: 212+ shares
D. Eliminated the ETF CHIQ-Sold 71+ Shares at $16.04-Commission Free ETF for Vanguard Brokerage Customers:
Quote: Global X MSCI China Consumer Discretionary ETF Overview
Sponsor's Page: MSCI China Consumer Discretionary ETF
Closing Price Yesterday: CHIQ $16.08 +$0.01 +0.04%
Profit Snapshot: +$94.59
Last Discussed: Item # 3.B. Bought 10 CHIQ at $12.8 (1/27/19 Post)
3. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Bought 2 General Mills 3.2% SU Maturing on 2/10/27:
FINRA Page: Bond Detail (prospectus linked)
Issuer: General Mills Inc. (GIS)
GIS Analyst Estimates
Credit Ratings:
Moody's downgraded the SU debt to Baa2 from A3 after GIS loaded up the balance sheet with new debt to fund the Blue Buffalo purchase. Moody's downgrades General Mills to Baa2 on $8B Blue Buffalo deal I would not quarrel with that downgrade.
The company froze the dividend after that acquisition. I anticipate that free cash flow will be used to pay down the debt sufficiently to warrant an upgrade to Baa1/BBB+ during or shortly after 2021.
This bond was not part of that offering, but was sold at 99.58 in a January 2017 offering.
Bought at a Total Cost of 94.421
YTM at TC Then at 4.026%
Current Yield at TC = 3.3891%
I am rolling early 2 GIS 2.2% bonds that mature on 10/21/19.
4. Small Ball-Commission Free ETF Buys:
A. Bought 10 FSMD at $24.83-Commission Free for Fidelity Customers:
Quote Fidelity Small-Mid Factor ETF Overview
Sponsor's Webpage: FSMD | ETF Snapshot - Fidelity
Expense Ratio: .29%
Positions as of 3/5/19: 594 stocks
FSMD is a new ETF created by Fidelity: Fidelity Launches Multi-Factor ETF for Often-Overlooked MidCap Equities
FSMD attempts to track the "Fidelity Small-Mid Factor Index, which is designed to reflect the performance of stocks of small and mid-capitalization U.S. companies with attractive valuations, high quality profiles, positive momentum signals, and lower volatility than the broader market."
Purchase Restriction: Small Ball Rule
Maximum Position: 100 Shares
Current Position: 10 shares (light years below immaterial)
This fund is probably too small for most investors now. The bid/ask spread is just too high. Limit orders need to be used. Since I can buy shares commission free in a Fidelity account, I am not concerned about partial fills of small odd lots.
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.
I received earlier today an email inquiry asking two questions. I would prefer that readers ask questions here rather than in an email so that my response can be viewed by anyone interested in my thinking.
ReplyDeleteThe reader wanted to know why I bought such small bond and CD lots when I could buy a 1 year CD at Ally or Marcus that yields 2.75%. That is a fair question, though I have never heard of Marcus.
This is my reply to that query:
"The Ally rate for a 1 year CD is better than others at 2.75%, but that would require me to open an account. I already have too many accounts. I do not even talk about some of them. I have one account at an online bank like Ally.
There is an early withdrawal penalty for the Ally CD and CDs are not liquid like the treasury bills. There is also the state tax issue that can narrow the after tax yield spread between a treasury and a CD. That is not relevant for me however since Tennessee does not tax interest paid on either instrument. The investment rate on a one year treasury bill is close enough to that 2.75% to prevent me from opening yet another account for a slightly higher yield.
As to the small investments, I may stop doing that at some point. It is important to me now to have a constant stream of income and proceeds from maturing securities that I can redeploy almost daily into whatever looks good to me. I am keeping three taxable brokerage accounts at less than $5K cash levels.
I have also been able to generate some profits from the bond holdings, which is not a practical option for a CD, and I do pick up more yield with the corporate bonds which adds up given the size of my fixed income portfolio. So, for many buys, I can generate more than an extra .25% by harvesting a bond profit which I will do from time to time.
There is also an issue when looking at short term instruments, ranging from money market funds to 2 year maturities, when interest rates trend down in a non-temporary fashion. The options available for a 2.75% one year CD may not look so hot when they mature in 2020."
I am only discussing some trades made in the following brokerage accounts: Fidelity taxable and Roth IRA accounts; Vanguard Roth IRA, Mutual Fund, and Taxable accounts; T. Rowe Price Mutual Fund accounts; IB taxable account, and Schwab taxable account.
I am probably moving into more of a trading mode for corporate bonds given their recent price increases. I may start to jettison some that are now selling above their $1K par value. My selling has been very light so far, unlike 2017 where I dumped more than 1/2 of my intermediate term corporate bonds.
So do you put any faith and weight into Grantham's assessment?
ReplyDeleteOn K-1's I have some qualified divs. All of $27. I can't remember whether K-1 info is reported and used every year, or it's used for when you sell to adjust the basis. It's LAZ, Lazard. $18 are from foreign, and $9 from USA. I don't see any taxes having been taken out. At least they give a number I can call. Though I'm tempted to ignore this and add it when the IRS notices and sends a letter with the correct calculations.
Land: Grantham is a smart guy with lot's of experience.
DeleteI don't think anyone can predict what will be the annual average total return for stocks over a 20 year period.
If I look at a 90 year inflation adjusted S & P 500 chart, I would not have predicted the returns starting in 1982 using the past as a guideline.
https://www.macrotrends.net/2324/sp-500-historical-chart-data
It may turn out that the past 37 years or so have taken out already some of the potential returns over the next 20.
It is also possible that a major catastrophic event will occur when you go out 20 years that would reduce the average annual total stock return below Grantham's forecast. I do view the potential for catastrophic event that lasts for years, rather than months, to be more likely as one goes out further in time. So 20 or 25 years may be far enough out in time when the buy and hold investor will suffer non-temporary and devastating losses.
Catastrophic stock market events are occurring more frequently already, with two in the last 19 years. Fortunately for stock investors, there was a relatively quick snapback to new highs. It will not always work out that way.
I avoid securities that send out K-1 forms. When I did not avoid them, I handled the issue in Turbo Tax filling out the information provided in the appropriate boxes. I thought the hassle was not worth it. My tax form, as it is, will normally exceed 60 pages, though I never actually count them to confirm that estimate. So I do not need any additional complications.
Good to know that Grantham is thoughtful rather than a perma-bull/bear. With the complexity of factors, 20 years is a long time out.
DeleteIt's possible too that nationalism world wide will be pulled back, and the economy will do well as a result of less energy on that type of "negotiation" on foreign trade.
Land: The problems are that planning for the future needs to occur in real time (continuously updated) and the future is ultimately unknowable.
DeleteThose issues create a real conundrum where there are no certain or clear answers for most individuals given their unique financial circumstances and situational risks.
Grantham and others who think about the future are attempting to lower expectations about potential returns and that can impact current decisions.
If returns are to be lower in the future than in the past, then a family needs to spend less and save and invest more now for example.
Too many households arrive at age 60, look back, and wonder why their savings are inadequate for retirement. It is necessary to plan at a far earlier time how one will meet future financial needs and to realistically estimate now what those expenses may be.
I have noted that bonds and short term fixed income investments are not likely to produce satisfactory results for most households. That is an understatement. By most, I mean about 80% to 90%.
The ten year treasury has now fallen below 2.6%.
Shorter term treasury and CD rates are just barely above CPI, providing a negligible real return and probably no real return when held in taxable accounts for households in a 20% tax bracket or higher (lower if the CD interest payments are subject to state income taxation).
While the future is unknowable with the kind of certainty that would make humans comfortable, individuals can identify those profound long term secular forces that drive growth or retard it, which requires separating out factors that do not materially impact the big picture but nonetheless cause many to obsess about them.
This may help the investor identify major changes in the long term trends and to reallocate accordingly.
Among the powerful forces are interest rates, inflation, debt levels and the ability to service debt.
Interest rates and inflation have been for many year benign for stocks. That is a sea change from what was happening when I bought my first stock in the late 1960s. Ultimately, it was problematic inflation and interest rates that caused a 18 year bear market in stocks and bonds that lasted until 1982. And, it was a realization, first by the Stock Jocks in August 1982 and much later by the Bond Ghouls, that inflation and interest rates were not going to be a long term problem that provided the necessary conditions for a long term secular bull market, lasting 18 years for stocks initially and arguably until the present for bonds.
Thanks for posting the bond commentary here.
ReplyDeleteI was surprised at how many people in social media couldn't understand that impeaching now, means losing the chance to remove period. Removal may or may not happen, but can only happen after the evidence is in a better format... namely under oath and paper or recordings or trustworthy witnesses to back it up. I sign petitions for impeachment. That's part of putting on the pressure onto the Senate. But Pelosi was playing this well.
ReplyDeleteI believe we have egregious enough violations now. However it's from news articles, and direct observation. We need the news articles pieces filled in with under oath type evidence. Only then and when it's all laid out, do we have a chance at GOP Senate recalculating.
McConnell is apparently very unpopular at home, even though he's won so many times before. The news show didn't address why he's unpopular and whether it's GOP or independents that changed.
I believe there is a Russian thread to all of this from Trump to GOP to FOX to NRA, starting by at least 2011. But that doesn't seem to be commonly thought yet.
One piece of evidence is that Trump doesn't read or consider history. Yet birtherism is based on a sophisticated use of post-civil war assertion that black people were not citizens. Something (amendment?) was passed so they would be citizens. Trump came up with that? The people around him now that might have like Bannon and Miller are new to him. However, that level of sophistication fits with Putin's known level of reading. There's other evidence.
Pelosi played one more piece well with this announcement. The news cycle was ... bigotry at Jews, no one much cared by Omar was challenging DNC establishment with it and dividing the party. Pirro put Omar into victim position, while she was supposed to be in dog house. Trump was triangulating so no one in DNC could address the topic without Trump saying he was right. All of this was bad for 2020 for Dems. She changed the news cycle that wasn't ending otherwise.
On Omar, there is another Omar... Omar Jamal who's a big leader in the Muslim MN community. He's been quoted into WashPost saying he voted for her, supported her, but no more. The article is poor and i'm not quoting it (It uses terrorist supporting JVP group as "Jewish left" - it's bad reporting & research in multiple ways).
She also needed very much to nip the media's constant statement that the current investigations are impeachment in all but by name. THIS is an example of how media is a problem, by making rather than reporting, news.
My Garmin is up 30%. I'm debating whether to sell into the next run up (it was at 32% before the pullback.) Nice div, good basics. But after a run like that, have to wonder if that's a point of pullback.
ReplyDeleteI have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2019/03/observations-and-sample-of-recent_17.html