Observations and Sample of Recent Trades: PRASX, TD, THGA

Economy:

Consumers continue to borrow at steady rate in February - MarketWatch Consumer debt rose $15.2B in February or at a 4.5% seasonally adjusted annual rate. The Fed - Consumer Credit - G.19 

 US-China trade: New consensus reached, says China's Liu He

Ray Dalio says wealth inequality is a national emergency - CBS News

U.S. threatens tariffs on European wine and cheese in response to Airbus subsidies - MarketWatch; USTR Proposes Products for Tariff Countermeasures in Response to Harm Caused by EU Aircraft Subsidies | United States Trade Representative

The U.S. Threatens Fresh Sanctions on E.U. Goods | Time; U.S. Warns Of New Tariffs On European Products, Citing Airbus Subsidies: NPR

Preliminary_Product_List for New U.S. Tariffs.pdf

Apparently, the U.S. is waiting for the World Trade Organization to approve the amount, which the U.S. anticipates during the summer. When the WTO approves the amount, the U.S. tariffs will go in effect immediately.   

Europe slams latest US tariff threat as 'greatly exaggerated' The EU said it will retaliate since the U.S. has not complied with the WTO ruling to remove subsidies for Boeing. EU scores final victory in the WTO Boeing dispute - Trade - European Commission

The stock market reacted negatively yesterday to the U.S. threatening more tariffs on European exports. 

From the Stock Jock's perspective, worrying about the future may cause a temporary anxiety attack, but will not sustain itself for long until what is feared about the future comes to pass. 

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Markets and Market Commentary:

What is the stock market and how does it relate to the economy (article written by Josh Brown)

Americans 55 and older suddenly lose jobs at fastest pace in 4 years

Trump: Economy would take off like 'rocket ship' if Fed cut rates; Trump calls for Fed to adopt quantitative easing after jobs report - MarketWatch Trump's opinions are either worthless or worse than worthless. 

What happened to Donald's concern about the Savings Class? 

When Obama was President, Donald was concerned about the meagre returns received by savers due to the Federal Reserves's interest rate suppression. Donald Trump Says Janet Yellen Keeps Interest Rates Low on Purpose | Fortune (Trump: “I love low interest rates, but that they hurt many people who were living on their savings.")

And Teflon Don complained that low rates were artificially pumping up the stock market which is what he wants the FED  to do now. Trump says Fed chief Yellen should be ashamed 

Trump Says Fed Should Cut Rates and Lift Economy - The New York Times Why does the economy need more monetary stimulus a year or so after the tax cuts went into effect with the federal government spending close to $1 trillion more than it receives in revenues,  interest rates being well below normal for an economic expansion in its 10th year, and the unemployment rate at 3.8%? 

Fed hits back at Trump over claims that tightening hurts the economy; What to Expect from Quantitative Tightening | St. Louis Fed

Trump is just preparing the groundwork for blaming the FED in case the economy meaningfully softens or falls into a recession. 

The FED's monetary policy has had no measurable adverse impact on the real economy, nor could it have with rates still at historically low levels. Allowing its balance sheet to decline somewhat from extremely bloated levels is not relevant either, except to the Stock Jocks who want a FED put on stock risks.    

30-Year Treasury Constant Maturity Rate-St. Louis Fed:

10-Year Treasury Constant Maturity Rate -St. Louis Fed:

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

Bank Prime Loan Rate-St. Louis Fed

Economists did predict when the Duck launched his tariff wars that those actions would take away the economic benefits of the tax cuts. 

The Economic and Distributional Impact of the Trump Administration’s Tariff Actions: Tax Foundation; Study Finds Long-Run Impact of the Tax Cuts and Jobs Act Offset By Trump Tariffs – Trade Leadership Coalition (TLC) Why doesn't Donald blame his tariffs rather than the FED I wonder?  

It is scary long term for America that Demagogue Don so easily manipulates tens of millions with false information that is so easily disproven. Those who are receptive to those false narratives are now, and will remain unreceptive and even hostile to acquiring and assimilating accurate information.     

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Trump: 

70% of Wall Street thinks Trump will be reelected in 2020

Donald is incapable of telling the truth. He even lies about where his father was born. Despite what Donald Trump keeps saying, his father was born in New York, not Germany | PolitiFact   

Video: Trump Tramples Facts at NRCC Event - FactCheck.org It is easy to characterize Trump and the Trumpsters as living in their own self-created alternate reality bubble that accurate information will never pierce.  

Anyone who attempts to pierce that alternate reality with accurate information is classified as having the Trump Derangement Syndrome, something the Trumpsters heard on Trump TV and have been parroting ever since it requires no thought or intelligent fact based opinions. 

The term Trump Derangement Syndrome was first used by a Fox commentator who claimed that critics of the Iraq War were suffering from what he dubbed the "Bush Derangement Syndrome". The fact that the criticisms were justified, and proved to be so, did not change the diagnosis. The critics were the ones who were deranged, even though their criticisms were rational and based on reality rather than the reality creations and delusions of those using putdowns like TDS or BDS. 

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The grounds crew at one of Donald's golf courses have a nickname for the Duck. They call him Pelé for his propensity to kick the ball when he dislikes where it landed. The Serial Golf Cheat in the White House | The New Yorker, Commander in Cheat: How Golf Explains Trump-Amazon Books 

I recall posting here a video of Donald driving his golf cart over a green which I have never seen or even heard of anyone doing before watching that video. President Donald Trump Drives Golf Cart On The Green | TODAY - YouTube

What could go wrong? Pork industry soon will have more power over meat inspections - The Washington Post After all, giving Boeing more self-regulatory power work out well? After Boeing Crashes, Sharp Questions About Industry Regulating Itself - The New York Times 

And how about giving the Masters of Disaster more control through self regulation? Agency’s ’04 Rule Let Banks Pile Up New Debt - The New York Times (2008 article in the NYT Reckoning series) 

And what about bringing back rats in hamburger meat? Rats | The New Yorker ("Rats were nuisances, and the packers would put poisoned bread out for them; they would die, and then rats, bread and meat would go into the hoppers together," Sinclair wrote in  The Jungle) Republican ideology can kill you in a variety of ways.  

Trump’s DHS purge shocks Republicans; Stephen Miller is behind a purge at Homeland Security — Quartz

22 Sexist Things President Donald Trump Has Said About Women | SELF

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1. Elimination:

A. Sold 856.144 T. Rowe Price New Asia Fund:

Sponsor's Website: New Asia Fund (PRASX)-T. Rowe Price

Position as of 3/21/19 (day prior to elimination)
  

Priced at $17.75

Profit Snapshot: $1,175.59

Dividends: Annually

I took the dividends paid in 2017 and 2018 in cash. Prior to 2017, I reinvested the dividends.   

2. Short Term Bond/CD Ladder Basket Strategy:

$7K in adds

A. Bought 2 Treasury 1.25% Coupon Maturing on 10/31/19: 

YTM = 2.502% 

I now own 4 bonds. 

B. Bought 2 Treasury 1% Coupon Maturing on 10/15/19:
YTM = 2.495625%

C. Bought 1 Treasury 1% Coupon Maturing on 10/15/19:
YTM = 2.482%

Same bond as Item 2.B. above except this one was bought in a different account. The YTM ticked slightly down from the prior recent purchase.

I now own 4 bonds.

D. Bought 2 Associated Bancorp 2.75% SU Maturing on 11/15/19:

I now own 4 bonds.

FINRA Page: Bond Detail (prospectus linked)

Issuer:  Associated Banc-Corp. (ASB)
ASB Analyst Estimates
Associated Banc-Corp Reports Full Year 2018 Earnings of $1.89 Per Common Share, Earnings per share up 33% from the prior year

Credit Ratings:

Bought at a Total Cost of 99.8
YTM at TC Then at 3.058%
Current Yield at TC  = 2.7555%

This is a redeployment of proceeds received from this bond:

3. Intermediate Term Bond/CD Ladder Basket Strategy:

A. Bought 2 American International Group 3.75% SU Maturing on 7/10/25:

FINRA Page: Bond Detail (prospectus linked)

Issuer: American International Group Inc. (AIG)

AIG SEC Filings

SEC Filed Earnings Press Release for Q/E 12/31/18

Last Bond Offering (March 2019): Prospectus ($600M 4.25% SU notes maturing in 2029)

Credit Ratings:

Bought at a Total Cost of 99.299
YTM at TC Then at 3.876%
Current Yield at TC = 3.7765%

Given my current objectives for income generation, I view the narrow spread between the current yield and YTM as important. For longer dated bonds, I prefer to have most of the yield paid currently rather than tied up in the potential profit.

AIG makes me feel uncomfortable. This will most likely be a trade rather than a hold until maturity. The recent earnings reports add to my angst. I would not buy the common stock even though Morningstar has a five star rating on it.

If anyone wants to learn how to lose billions while making hundreds of millions for yourself, this article published in the NYT back in 2008 provides some pointers. Behind Insurer’s Crisis, Blind Eye to a Web of Risk - The New York Times

I will generally keep my AIG senior unsecured bond exposure at no more than $2K. I have two bonds maturing this July so I am rolling in advance the proceeds that will soon be received into a higher yielding AIG bond.

B. Sold 2 Realty Income 3% SU Maturing on 1/15/27:

FINRA Page: Bond Detail

Profit Snapshot: +$19.46

Based on the price action after I bought this bond, I paid too much for it in retrospect (see price chart at the FINRA Link) The ten year treasury closed at a 2.18% yield on the day of purchase (4/18/17). The buy made sense in April 2017 based on the Bond Ghoul's future forecasts then and a 3 month treasury bill rate of .82%. 2017 Daily Treasury Yield Curve Rates A subsequent rise in interest rates took this bond down as low as 89.97. Even though the ten year yield is higher now than in April 2017, I was able to sell at a profit given the price rally that substantially lowered the ten year treasury yield and the shorter time period to maturity.

Sold at 97
YTM at 97 = 3.441%
Current Yield at 97 = 3.0928%

The AIG bond discussed above matures on 7/20/25 with a YTM at 3.876% and a current yield at 3.7765%. The Realty Income bond has a one notch higher rating. As with all relative value swaps that I do, the future will provide the answer whether or not this was worthwhile or a disaster.

It would be a worthwhile swap with (1) AIG surviving to pay all interest payments and the principal amount at maturity; (2) Realty Income filing for bankruptcy protection (very remote); or (3) greater price appreciation in the AIG bond prior to maturity compared to the Realty income bond that allows me to profit more from selling the AIG bond rather than holding and then selling the Reality Income bond. Just logic here.

The disaster scenario is that AIG files for bankruptcy before this bond matures in 2025. The Baa1 rating suggests that this is unlikely, though earnings reports and financial condition will need to be monitored for early signs of material credit risks developing. 

An unfortunate scenario would be one where there is a material decline in AIG's credit risk that reasonably calls into question its survivability, well before a BK is filed (or possibly never filed before maturity) where the prudent course of action with a capital preservation objective is to sell at a loss before the loss steepens.

I have not been forced to that with any purchase yet of an investment grade corporate bond. But, the time will probably come given the multitude of bonds owned from different issuers (probably over 250 issuers but I am not going to count them to confirm)

4. Bought 30 TD at $54.28-Used Commission Free Trade:

Closing Price Yesterday: TD $55.34 -$0.43 -0.77%  (the stock was ex dividend yesterday)  

Quotes: 

USD Priced:  Toronto-Dominion Bank  (U.S.: NYSE)
CAD Priced: Toronto-Dominion Bank  (Canada: Toronto) 

The USD priced shares will close track the CAD priced shares traded in Toronto based on the then current exchange rates: CAD/USD Currency Chart 
 
TD Analyst Estimates
TD Bank Group - Investor Relations

Last Eliminations:

Item # 1 Eliminated TD-Sold 53+ Shares at $58.31 (3/19/18 Post)(profit snapshot +$910.82);

Item 4.A. Sold 54+ TD at $56.97  (11/4/17 Post)(profit snapshot +$718.78)-Dividend Growth And Large Cap Valuation Strategies: Bought Toronto Dominion Bank (TD) - South Gent | Seeking Alpha

Current Position: 30 Shares

Maximum Position: 100 Shares 

Purchase Restriction: Small Ball Rule

Dividends: Quarterly at C$.74

For owners of the USD priced shares, the Canadian dollar dividend will be converted to U.S. dollars with Canada deducting 15% as a withholding tax assuming your broker claims U.S. citizen tax treaty rights. 

The quarterly dividend was increased by C$.07 per share or 10.4% effective for the April payment. TD Bank Group Declares Dividends - Feb 28, 2019 

This is a snapshot showing the withholding for the last dividend that I received received which was in March 2018: 

I sold my remaining lot after the quarterly ex dividend date, as noted in a previous link above.  

If the CAD goes up in value after this purchase, that will in effect be a dividend increase with the penny rate remaining the same and more with an increase in that rate. The dividend can effectively be cut, on the other hand, with the CAD falling in value against the dollar since the dividend payment in CADs buys fewer dollars. It is important to fully understand how currency exchange rates impact yield and the stock price when buying foreign stocks.  

Last Ex Dividend Date: 4/9/19  (after purchase)

Last Earnings Report: Q/E 12/31/18

TD Bank Group Reports First Quarter 2019 Results

Charge for Air Canada Credit Card Agreement: 

TD and Air Canada Enter into Air Canada Credit Card Loyalty Program Agreement; TD and Air Canada Finalize Long-Term Agreement for Air Canada Credit Card Loyalty Program

Charge for Greystone Acquisition: 

TD Bank Group to acquire Greystone Managed Investments Inc. ("one of Canada's largest money managers* with C$36 billion of assets under management (as at June 30, 2018). Greystone is a multi-asset class manager with in-house expertise in fixed income, Canadian equities, U.S. equities, international equities, real estate, mortgages and infrastructure. Greystone is headquartered in Regina, with offices in Toronto, Winnipeg and Hong Kong."); TD Bank Group completes acquisition of Greystone Capital Management Inc.

I would look through those one time charges to core operating results. 

TD's U.S. bank operations continue to shine: "U.S. Retail reported net income was $1,240 million (US$935 million), an increase of 30% (25% in U.S. dollars) and up 21% (16% in U.S. dollars) on an adjusted basis, compared with the same quarter last year. TD Ameritrade contributed $311 million (US$235 million) to the segment this quarter compared to $106 million in the sa e quarter last year."

"Reported net income for Canadian Retail was $1,379 million, down 22% from the first quarter last year. Adjusted net income, which excludes the Air Canada and Greystone charges above, was $1,855 million, an increase of 6% over the first quarter of 2018. Revenue growth was 8%, reflecting contributions across all businesses."

Wholesale banking operations were the main drag on the quarter.  That segment will have volatile results. 

TD Bank Group Statement on U.S. Tax Reform

I would characterize institutional interest in this stock as tepid. Earnings growth will be subdued to a variety of headwinds. The debt levels of Canadian households to disposable income remain a concern.Canada Households Debt To Disposable Income; Canada’s household debt-to-income ratio still near record despite rising rates - National | Globalnews.ca  Home prices may be due for a correction. National Statistics Some of these issues have recently caused some hedge funds to short the Canadian banks. A Top-Performing Hedge Fund Is Shorting Canada Banks on Housing - Bloomberg These issues are sufficient to cause me to be cautious and to use the small ball rule for any subsequent purchases. 

I view this kind of purchase as a bond substitute which, unlike a fixed coupon bond, can increase the yield based on a constant cost number but with no promise to pay a fixed sum at a time certain. The general idea is to harvest a 6% to 8% annual total return. My expectations for annual stock market returns over the next decade are not very high. An average annual total return of 7% could easily outperform SPX IMO over the next 10 year period (April 2019-April 2029). A catastrophic event within that time is certainly possible.   

5. Elimination:

A. Sold 60 THGA at $25.97-Used Commission Free Trade:

Quote: Hanover Insurance Group Inc. 6.35% Subordinated Notes due 2053 (THGA)

Issuer: Hanover Insurance Group (THG)

THG Analyst Estimates
Hanover Insurance Group-Profile Page at Reuters

The use of the word subordinated would indicate a bond that is junior to senior unsecured and secured debt. That is the case with this bond. 

Categories: Exchange Traded Baby Bonds and part of Exchange Traded Bonds

Profit Snapshot: +$70.04

Item 1.A. Bought 50 THGA at $24.94 and 10 at $24.13-Used Commission Free Trades (1/2/19 Post) 

Security Description:

PROSPECTUS
Par Value: $25
Interest Payments: Quarterly/Trades Flat
Issuer Optional Redemption: At anytime now at par value
Maturity Date: 3/30/53 unless redeemed early by issuer

Stopper Clause: Yes, see page S-15 of the prospectus 

Last Ex Interest Date: 3/14/19 (before sell)
Trades Flat 

Realized Gains to Date: +$329.65  (prior Trades = $259.61+)

Prior Round-Trips: 

Item # 5.A. Sold 50 THGA at $25.69-Roth IRA Account and 50 THGA at $25.72 in Taxable Account (9/11/17 Post)-South Gent's Comment Blog # 6: Bought 50 THGA in Roth IRA at $24.7 and South Gent's Comment Blog # 6: Bought 50 THGA at $24.87

Item # 4 Sold 50 THGA at $25.36 (1/29/17 Post)-Item # 4  Bought Back THGA at $24.98: Update For Exchange Traded Bonds And Preferred Stock Basket Strategy As Of 1/22/16 - South Gent | Seeking Alpha

Item # 3 Roth IRA: Bought 50 THGA at $21.58 (11/6/13 Post)-Sold THGA: 50 Shares at $23.46-Roth IRA and 50 Shares Taxable Account at $23.67 (5/17/14 Post)

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.