Economy:
The BLS reported that the economy added 75,000 jobs last month. The consensus estimate was 185,000. Wage growth over the past 12 months slowed to 3.1% compared to 3.2% in the prior month. This number peaked at 3.4% last February. Job gains in April and March were reduced by a combined 75,000. Employment Situation Summary
The BLS reported that the economy added 75,000 jobs last month. The consensus estimate was 185,000. Wage growth over the past 12 months slowed to 3.1% compared to 3.2% in the prior month. This number peaked at 3.4% last February. Job gains in April and March were reduced by a combined 75,000. Employment Situation Summary
Factory orders sink again, highlight soft underbelly of U.S. economy- MarketWatch; U.S. Manufacturers Shipments, Inventories and New Orders for April 2019 (new orders down .8% with new orders for durable down 2.1%)
Trade war could wipe $455 billion off global growth next year: IMF
China Summons Tech Giants to Warn Against Cooperating With Trump Ban - The New York Times
This yield curve expert with a perfect track record sees recession risk growing - MarketWatch
The housing price bubble topped out, depending on the location, in 2006-2007. In the first quarter of 2019, 2.2 residential homes with a mortgage had negative equity or 4.1% of the total. CoreLogic Reports the Negative Equity Share Fell to 4.1% in the First Quarter of 2019; Millions of Americans still trapped in debt-logged homes ten years after crisis - Reuters (9/14/18 published article)
++++
Trade war could wipe $455 billion off global growth next year: IMF
China Summons Tech Giants to Warn Against Cooperating With Trump Ban - The New York Times
This yield curve expert with a perfect track record sees recession risk growing - MarketWatch
The housing price bubble topped out, depending on the location, in 2006-2007. In the first quarter of 2019, 2.2 residential homes with a mortgage had negative equity or 4.1% of the total. CoreLogic Reports the Negative Equity Share Fell to 4.1% in the First Quarter of 2019; Millions of Americans still trapped in debt-logged homes ten years after crisis - Reuters (9/14/18 published article)
++++
Markets and Market Commentary:
Stocks rose last Friday in response to the bad jobs report. The rapid decline in interest rates over the past several months have made stocks the only game in town for investors needing an after tax return in excess of the inflation rate.
Dividend stocks tempt investors as bond yields continue to fall-MarketWatch
The Stock Jocks predicted that the threatened tariffs against Mexico would not materialize or would quickly come to an end after the 5% levy.
They were right on that call since Trump basically backed down on key demands given republican opposition to the tariffs and the weakening job numbers released last Friday. Trump says the US and Mexico have reached a deal to avoid tariffs
Mexico pointed out that the agreement did not include a provision, known as the Safe Third Country, that would have required asylum seekers to apply for refugee status in Mexico. That was a key demand made by Trump.
Instead, Trump backed off after Mexico promised to use national guard forces to curtail illegal immigration and to "expand" the Migrant Protection Protocols (MPP) program "that allows the United States to return Central American migrants to Mexico while they await the adjudication of their asylum hearings in U.S. immigration court."
Since that MPP program started, only 10,393 Central American migrants have been returned to Mexico. More than 10,000 asylum seekers returned under "Remain in Mexico" as U.S. set to expand policy - CBS News That policy may not pass judicial scrutiny. It is also unclear what is meant in numbers by the word "expand" which is not defined in the joint statement. Trump Calls Off Plan to Impose Tariffs on Mexico - The New York Times
The question is what will Donald do when and if the illegal flow of immigration is slowed somewhat but remains at elevated levels. In the joint statement, it was expressly acknowledged that both parties may take additional actions if the "expected results" do not materialize in 90 days. Read the US-Mexico statement on immigration that averted Trump's tariffs
The decline in interest rates, coupled with the yield inversion along the short to intermediate term maturity spectrum, has caused me to significantly pare my intermediate term corporate bond portfolio. I will be about one month behind in discussing the sells which are occurring on most trading days now.
Ford's China business hit with $23.6 million fine - CNN; First FedEx, Now Ford. China Clamps Down on U.S. Companies - Bloomberg
In a double whammy, Fitch downgrades Mexico and Moody's lowers outlook
Fed typically ‘cuts swiftly and does not disappoint market expectations,’ says BAML - MarketWatch
The Bond Ghouls are forecasting a high probability of at least a .5% cut in the FF rate on or before the January 2020 meeting:
Increase: zero percent
.25% Cut = at 98.7%
.50% Cut = at 87.1%
Countdown to FOMC: CME FedWatch Tool
The first .25% cut is predicted at 95.5% on or before the September 2019 meeting with a .5% cut estimated at 63.9% or or before that meeting:
The high probability assigned to that forecast is predicated on major negative events occurring that threaten the economic expansion. The probability can quickly change based on positive economic developments over the summer.
The predicted FF rate cuts are being priced into the short term treasury bills. Note the drop off in yields starting with the 3 month treasury bill.
The actual FF target range has not changed this year. But note the yields on short term treasuries earlier this year compare to the rates in the previous snapshot:
Daily Treasury Yield Curve Rates
Compared to earlier in the year, the 6 month treasury bill yield has already declined by more than .25%.
I would see no reason for a FF rate cut with inflation running close to 2% and annual real GDP growth of +2% but the Fed is likely to give the Stock Jocks what they want. A .50% to 1% cut in the FF rate is primarily a stock market event and will not meaningfully impede an economic slowdown that is already in motion.
Rates are already extremely low by historical standards and even more extreme for a long term expansion cycle.
I would view the currently anticipated FF rate cuts as likely to cause more harm than good.
How much will a 1% cut in short term rates impact consumer disposable income?
Households have over $9.386 trillion just in savings accounts, a number that has more than doubled over the last 10 years:
Total Savings Deposits at all Depository Institutions-St. Louis Fed
Based on the Fed's last report, $570 million was in small denomination time deposits and another $878+ million in non-institutional money market funds. (Table 4 at The Fed - Money Stock and Debt Measures - H.6 Release - June 06, 2019 ) Those numbers do not include demand deposits or households investments in treasury bills, bonds and bond funds whose rates are currently plummeting on a percentage basis from already low levels.
Some will argue that the decline in mortgage rates is an offset to lower interest income.
Even if that was true, the impact would be limited to those households who would benefit from a refinancing or are first time home buyers.
What is not understood with any precision is how easy credit and/or lower mortgage rates impact the rise in home prices.
The housing bubble was created largely by improvident lending that funded demand that would otherwise not have been present.
A decline in mortgage rates can result in more demand as more households qualify for loans, or are sufficiently motivated to become first time home buyers.
In many markets, I suspect that lower mortgage rates has already or will cause home prices to increase more than the present value of the mortgage savings. The interest rate savings in those cases are mirages and can lead to disastrous results.
The question is what happens when the favorable conditions are removed (e.g. much higher mortgage rates or the mortgage servicing cost for a median price home becomes unaffordable to most middle income households due to one of more factors including the rise in interest rates, changes in tax laws on deductibility of state income taxes, and/or a rise in the home's price).
The end result can be a huge spike in foreclosures and negative equity which is what happened when the housing bubble burst in 2008.
Median Sales Price of Houses Sold for the United States- St. Louis Fed
A change in one economic variable can significantly impact another, and consequently can not be understood and evaluated in isolation from one another.
Stocks rose last Friday in response to the bad jobs report. The rapid decline in interest rates over the past several months have made stocks the only game in town for investors needing an after tax return in excess of the inflation rate.
Dividend stocks tempt investors as bond yields continue to fall-MarketWatch
The Stock Jocks predicted that the threatened tariffs against Mexico would not materialize or would quickly come to an end after the 5% levy.
They were right on that call since Trump basically backed down on key demands given republican opposition to the tariffs and the weakening job numbers released last Friday. Trump says the US and Mexico have reached a deal to avoid tariffs
Mexico pointed out that the agreement did not include a provision, known as the Safe Third Country, that would have required asylum seekers to apply for refugee status in Mexico. That was a key demand made by Trump.
Instead, Trump backed off after Mexico promised to use national guard forces to curtail illegal immigration and to "expand" the Migrant Protection Protocols (MPP) program "that allows the United States to return Central American migrants to Mexico while they await the adjudication of their asylum hearings in U.S. immigration court."
Since that MPP program started, only 10,393 Central American migrants have been returned to Mexico. More than 10,000 asylum seekers returned under "Remain in Mexico" as U.S. set to expand policy - CBS News That policy may not pass judicial scrutiny. It is also unclear what is meant in numbers by the word "expand" which is not defined in the joint statement. Trump Calls Off Plan to Impose Tariffs on Mexico - The New York Times
The question is what will Donald do when and if the illegal flow of immigration is slowed somewhat but remains at elevated levels. In the joint statement, it was expressly acknowledged that both parties may take additional actions if the "expected results" do not materialize in 90 days. Read the US-Mexico statement on immigration that averted Trump's tariffs
The decline in interest rates, coupled with the yield inversion along the short to intermediate term maturity spectrum, has caused me to significantly pare my intermediate term corporate bond portfolio. I will be about one month behind in discussing the sells which are occurring on most trading days now.
Ford's China business hit with $23.6 million fine - CNN; First FedEx, Now Ford. China Clamps Down on U.S. Companies - Bloomberg
In a double whammy, Fitch downgrades Mexico and Moody's lowers outlook
Fed typically ‘cuts swiftly and does not disappoint market expectations,’ says BAML - MarketWatch
The Bond Ghouls are forecasting a high probability of at least a .5% cut in the FF rate on or before the January 2020 meeting:
Increase: zero percent
.25% Cut = at 98.7%
.50% Cut = at 87.1%
Countdown to FOMC: CME FedWatch Tool
The first .25% cut is predicted at 95.5% on or before the September 2019 meeting with a .5% cut estimated at 63.9% or or before that meeting:
 |
| On or Before 9/18/19 Fed Meeting |
The predicted FF rate cuts are being priced into the short term treasury bills. Note the drop off in yields starting with the 3 month treasury bill.
The actual FF target range has not changed this year. But note the yields on short term treasuries earlier this year compare to the rates in the previous snapshot:
Compared to earlier in the year, the 6 month treasury bill yield has already declined by more than .25%.
I would see no reason for a FF rate cut with inflation running close to 2% and annual real GDP growth of +2% but the Fed is likely to give the Stock Jocks what they want. A .50% to 1% cut in the FF rate is primarily a stock market event and will not meaningfully impede an economic slowdown that is already in motion.
Rates are already extremely low by historical standards and even more extreme for a long term expansion cycle.
I would view the currently anticipated FF rate cuts as likely to cause more harm than good.
How much will a 1% cut in short term rates impact consumer disposable income?
Households have over $9.386 trillion just in savings accounts, a number that has more than doubled over the last 10 years:
Based on the Fed's last report, $570 million was in small denomination time deposits and another $878+ million in non-institutional money market funds. (Table 4 at The Fed - Money Stock and Debt Measures - H.6 Release - June 06, 2019 ) Those numbers do not include demand deposits or households investments in treasury bills, bonds and bond funds whose rates are currently plummeting on a percentage basis from already low levels.
Some will argue that the decline in mortgage rates is an offset to lower interest income.
Even if that was true, the impact would be limited to those households who would benefit from a refinancing or are first time home buyers.
What is not understood with any precision is how easy credit and/or lower mortgage rates impact the rise in home prices.
The housing bubble was created largely by improvident lending that funded demand that would otherwise not have been present.
A decline in mortgage rates can result in more demand as more households qualify for loans, or are sufficiently motivated to become first time home buyers.
In many markets, I suspect that lower mortgage rates has already or will cause home prices to increase more than the present value of the mortgage savings. The interest rate savings in those cases are mirages and can lead to disastrous results.
The question is what happens when the favorable conditions are removed (e.g. much higher mortgage rates or the mortgage servicing cost for a median price home becomes unaffordable to most middle income households due to one of more factors including the rise in interest rates, changes in tax laws on deductibility of state income taxes, and/or a rise in the home's price).
The end result can be a huge spike in foreclosures and negative equity which is what happened when the housing bubble burst in 2008.
 |
| Note the recent decline |
A change in one economic variable can significantly impact another, and consequently can not be understood and evaluated in isolation from one another.
++++
Trump:
This Trump comment is delusionary, but that is Donald's normal state of mind:
Anti-Trump Protests in London Not 'Fake News' - FactCheck.org
Amid somber D-Day commemorations, Trump keeps stirring the pot
Just another delusionary comment from Demagogue Don made on the same day:
The Fake News President, who constantly bombards us with his reality creations and lies, had some harsh words for the entertainer Bette Midler who reposted a false quote attributed to Donald. When she became aware that the quote was made up, Ms. Midler apologized. Thereafter, Disgusting Don posted this tweet:
President Donald Trump bashes Bette Midler after she apologized for sharing fake quote
FactChecking Trump's Response to Mueller - FactCheck.org
Is Donald Trump the most transparent president ever? No | PolitiFact (Lying Don's claim is classified as "Pants on Fire").
Donald Trump said the UK is America’s largest trading partner. It ranks 5th | PolitiFact
Trump’s parade of false claims overseas - The Washington Post
Ex-US Mexico ambassadors: Tariffs would destroy partnership we built It is obvious that Trump's tariffs on Mexico's exports, when and if imposed, will weaken Mexico's economy and cause an increase illegal immigration.
This Trump comment is delusionary, but that is Donald's normal state of mind:
Anti-Trump Protests in London Not 'Fake News' - FactCheck.org
Amid somber D-Day commemorations, Trump keeps stirring the pot
Just another delusionary comment from Demagogue Don made on the same day:
The Fake News President, who constantly bombards us with his reality creations and lies, had some harsh words for the entertainer Bette Midler who reposted a false quote attributed to Donald. When she became aware that the quote was made up, Ms. Midler apologized. Thereafter, Disgusting Don posted this tweet:
President Donald Trump bashes Bette Midler after she apologized for sharing fake quote
FactChecking Trump's Response to Mueller - FactCheck.org
Is Donald Trump the most transparent president ever? No | PolitiFact (Lying Don's claim is classified as "Pants on Fire").
Donald Trump said the UK is America’s largest trading partner. It ranks 5th | PolitiFact
Trump’s parade of false claims overseas - The Washington Post
Ex-US Mexico ambassadors: Tariffs would destroy partnership we built It is obvious that Trump's tariffs on Mexico's exports, when and if imposed, will weaken Mexico's economy and cause an increase illegal immigration.
Trump admin approved nuclear energy transfers to Saudis after Khashoggi killing
Fact-checking Trump's false claims on climate - CNN
In an interview with Piers Morgan, Donald asserted that "he would not have minded" being a soldier in the Vietnam War and would "have been honored" to serve. Trump tells Piers Morgan is he 'making up for' not serving in Vietnam with defense spending - The Washington Post
CNN Poll: Rising share expect Trump to win in 2020
He was arrested at 13. Now Saudi Arabia wants to execute him His crime occurred when he was 10 while riding his back and spoke through a megaphone "The people demand human rights". For that act, he has been imprisoned for 4 years and faces the death penalty. Trump faces bipartisan pushback over arms sales to Saudi Arabia, UAE; Trump Allows High-Tech U.S. Bomb Parts to Be Built in Saudi Arabia - The New York Times
+++++
1. Pares and Eliminations:
A. Pared IRT Again-Sold 121+ Shares at $10.91:
Profit Snapshot: +$427.88
Independence Realty Trust Inc. (IRT)
SEC Filings
IRT Apartment Map
2018 Annual Report
10-Q for the Q/E 3/31/19
Investment Category: Equity REIT Common and Preferred Stock Basket Strategy (contains trade snapshots)
Dividend: Quarterly at $.18 per share ($.72 annually)
This transaction eliminates the position held in my Schwab account, leaving me with 150 shares in my IB account (average cost per share = $6.51 with a yield of 11.06% at total cost). I am down to my lowest cost lot.
The reasons for trimming my position are discussed in this recent post: Item # 3.A. Sold 127 IRT at $10.52-Used Commission Free Trade (5/29/18 Post)
IRT Trading Profits to Date: +$1,566.2 ($1,138.32 in prior trades)
B. Eliminated H:CA-Sold 150 at C$22.96 (C$1.5 IB Commission):
Quote: Hydro One Ltd. Stock Quote (Canada: Toronto)
Investor Relations
Closing Price Last Friday: H.TO C$22.92 -C$0.16 -0.69%
Profit Snapshot: +C$150.5
Item # 2 Added 50 Hydro One at C$21.01 (3/12/18 Post); Item #3.A. Bought 100 Hydro One at C$22.39 (12/4/17 Post)
Dividend: Quarterly at C$.2415
Dividend Information
Hydro One Limited Increases Dividend by 5% and Declares Quarterly Common Share Dividend - May 9, 2019
Last Earnings Report: Hydro One Reports First Quarter Results, Announces New CEO, CFO, and Increases Dividend - May 9, 2019
The stock has done much better after Hydro terminated its acquisition offer for Avista due to regulatory opposition. Hydro One and Avista Mutually Agree to Terminate Merger Agreement - Jan 23, 2019 Note the charge relating to that abandoned merger.
1. Pares and Eliminations:
A. Pared IRT Again-Sold 121+ Shares at $10.91:
Profit Snapshot: +$427.88
Independence Realty Trust Inc. (IRT)
SEC Filings
IRT Apartment Map
2018 Annual Report
10-Q for the Q/E 3/31/19
Investment Category: Equity REIT Common and Preferred Stock Basket Strategy (contains trade snapshots)
Dividend: Quarterly at $.18 per share ($.72 annually)
This transaction eliminates the position held in my Schwab account, leaving me with 150 shares in my IB account (average cost per share = $6.51 with a yield of 11.06% at total cost). I am down to my lowest cost lot.
The reasons for trimming my position are discussed in this recent post: Item # 3.A. Sold 127 IRT at $10.52-Used Commission Free Trade (5/29/18 Post)
IRT Trading Profits to Date: +$1,566.2 ($1,138.32 in prior trades)
B. Eliminated H:CA-Sold 150 at C$22.96 (C$1.5 IB Commission):
Quote: Hydro One Ltd. Stock Quote (Canada: Toronto)
Investor Relations
Closing Price Last Friday: H.TO C$22.92 -C$0.16 -0.69%
Profit Snapshot: +C$150.5
Item # 2 Added 50 Hydro One at C$21.01 (3/12/18 Post); Item #3.A. Bought 100 Hydro One at C$22.39 (12/4/17 Post)
Dividend: Quarterly at C$.2415
Dividend Information
Hydro One Limited Increases Dividend by 5% and Declares Quarterly Common Share Dividend - May 9, 2019
Last Earnings Report: Hydro One Reports First Quarter Results, Announces New CEO, CFO, and Increases Dividend - May 9, 2019
The stock has done much better after Hydro terminated its acquisition offer for Avista due to regulatory opposition. Hydro One and Avista Mutually Agree to Terminate Merger Agreement - Jan 23, 2019 Note the charge relating to that abandoned merger.
2. Short Term Bond/CD Ladder Basket Strategy:
$9K in Adds:
A. Bought 3 East West Bank 2.4% CDs (monthly interest payments) Maturing on 12/5/19:
B. Bought 2 Reliant Bank 2.4% CDs (monthly interest payments) Maturing on 12/16/19:
Issuer: Operating bank for Reliant Bancorp Inc. (RBNC)
RBNC | Reliant Bancorp Inc. Analyst Estimates
C. Bought 2 Six Month Treasury Bills at Auction Maturing on 12/5/19:
IR = 2.319%
Auction Results:
D. Bought 2 Synchrony Bank 2.45% CDs Maturing on 12/9/19 (6 month CDs):
3. Intermediate Term Bond Basket Strategy:
A. Sold 1 Laboratory Corporation 3.25% SU Maturing on 9/1/24:
Profit Snapshot: +$28.04
Item # 4.A. Bought 1 LH SU at a TC of 97.277 (3/15/18 Post)
The annual interest payment on a 1 bond lot is $32.5.
Finra Page: Bond Detail
Issuer: Laboratory Corp. of America Holdings (LH)
LH Analyst Estimates
Sold at 100.131
YTM at 100.131 = 3.222%
B. Sold 1 Union Pacific 2.95% SU Maturing on 1/15/23:
Profit Snapshot: +$20.57
Item # 3.A. Bought 1 UNP SU at a TC of 98.368 (5/14/18 Post)
The annual interest payment for a 1 bond lot is $29.5.
Finra Page:Bond Detail
Sold at 100.525
YTM at 100.525 = 2.786%
Issuer: Union Pacific Corp. (UNP)
UNP Analyst Estimates
4. Small Ball ETF Basket-All Commission Free Trades:
All purchases are subject to the small ball purchase restriction.
A. Bought 5 FCOM at $31.4:
Quote: Fidelity MSCI Communication Services Index ETF Overview
Closing Price Last Friday: FCOM $32.35 +$0.44 +1.38%
Last Discussed: Item # 4.A. (4/20/19 Post)
Sponsor's website: FCOM | ETF Snapshot - Fidelity
Expense Ratio: .084%
Current Position: 15 Shares
Maximum Position: 100 Shares
B. Bought 2 IEMG at $49.38:
Quote: iShares Core MSCI Emerging Markets ETF
Closing Price Last Friday: IEMG $49.69 +$0.37 +0.75%
Last Discussed: Item # 3.A. (4/7/19 Post)
Sponsor's Website: iShares Core MSCI Emerging Markets ETF
Morningstar: iShares Core MSCI Emerging Markets ETF ETF (IEMG)
Expense Ratio: .14%
Current Position: 12 Shares
Maximum Position: 50 Shares
5. Bought 100 SLV at $13.84 ($1 IB Commission):
Quote: iShares Silver Trust Overview
Closing Price Last Friday: SLV $14.07 +$0.15 +1.08%
Last Elimination: Item # 3.A. Sold 60 SLV at $15.18-Used Commission Free Trade (2/6/19 Post)
Precious metals entered a long term secular bear market in 2011 that has been difficult to trade profitably.
This buy was based on close to no thought after looking at this chart:
So far SLV has bounced off $13.5.
Gold and silver have moved up slightly in recent days as the USD declined in value: DXY | U.S. Dollar Index (DXY) Advanced Charts | MarketWatch
It is possible that a breakdown in trade negotiations with China and Mexico could cause a rise in PM prices.
Another reason for this trade was boredom.
I generally do not hold onto precious metal ETFs for long.
I play the long term secular trends with the bullion. I last sold bullion in September 2011 and January 2012. The bullion prices for silver and gold have not fallen enough for me to buy.
6. Portfolio Management-Tennessee Municipal Bonds:
I own longer term Tennessee municipal bonds in three taxable accounts.
The following are snapshots taken from my Fidelity account. Prices are invariably lower than fair market value and are based on estimates made by a third party pricing service.
The issuers generally reserve an optional redemption right at par value which can significantly impact the current prices.
The largest unrealized gains in the following snapshots come from low coupon bonds bought a deep discounts to par value. Some examples are in the Maury County GO bonds.
These bonds carry AA to AAA ratings and are mostly general obligation bonds. Some are issued by municipal owned utilities (water, electric or sewer) Tennessee is a public power state.
Par Value Priced at 100
Par Value: $1,000 per bond
Minimum Lot Sizes: 5 bonds and then in 5 bond increments
Maury County GO Bonds: Rated at Aa2 by Moody's
Emma page for 2.375% GO
Williamson County GO Bonds: Rated Aaa by Moody's
EMMA Page for 2032 GO
Knox County GO (rated Aa1 by Moody's) and City of Knoxville Gas and Electric (rated at Aa2)
Memphis and Shelby County: (Memphis GO rated at Aa2; Memphis Water Revenue rated at Aa1)
Nashville GO: (rated at Aa2 by Moody's)
Montgomery County GO Rated at AA+:
Emma Page for 2027 GO
Chattanooga Electric Revenue: (rated at AA+)
Sullivan (rated at Aa2 by Moody's) and Sumner County (rated at AA+ by S & P) GO Bonds:
Johnson City: (rated at Aa2 by Moody's)
Unlike most of the corporate bonds that I buy, these bonds are not liquid. When I purchased them, I had to accept the fact that I would probably hold them until maturity or an exercise of the optional redemption right. However, for some of the bonds bought at more than a 2% premium to par value (e.g. the 4% Chattanooga Electric), I may try to sell them when and if there is a further decline in interest rates, though that is not likely given the liquidity issue. The $5K 4% Chattanooga Electric bond can be called on or after 9/1/25 and represents the highest premium that I paid.
On an aggregate basis, the total invested was about $4K below par value.
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.
Issuer: Operating bank for Reliant Bancorp Inc. (RBNC)
RBNC | Reliant Bancorp Inc. Analyst Estimates
C. Bought 2 Six Month Treasury Bills at Auction Maturing on 12/5/19:
IR = 2.319%
Auction Results:
D. Bought 2 Synchrony Bank 2.45% CDs Maturing on 12/9/19 (6 month CDs):
3. Intermediate Term Bond Basket Strategy:
A. Sold 1 Laboratory Corporation 3.25% SU Maturing on 9/1/24:
Profit Snapshot: +$28.04
Item # 4.A. Bought 1 LH SU at a TC of 97.277 (3/15/18 Post)
The annual interest payment on a 1 bond lot is $32.5.
Finra Page: Bond Detail
Issuer: Laboratory Corp. of America Holdings (LH)
LH Analyst Estimates
Sold at 100.131
YTM at 100.131 = 3.222%
B. Sold 1 Union Pacific 2.95% SU Maturing on 1/15/23:
Profit Snapshot: +$20.57
Item # 3.A. Bought 1 UNP SU at a TC of 98.368 (5/14/18 Post)
The annual interest payment for a 1 bond lot is $29.5.
Finra Page:Bond Detail
Sold at 100.525
YTM at 100.525 = 2.786%
Issuer: Union Pacific Corp. (UNP)
UNP Analyst Estimates
4. Small Ball ETF Basket-All Commission Free Trades:
All purchases are subject to the small ball purchase restriction.
A. Bought 5 FCOM at $31.4:
Quote: Fidelity MSCI Communication Services Index ETF Overview
Closing Price Last Friday: FCOM $32.35 +$0.44 +1.38%
Last Discussed: Item # 4.A. (4/20/19 Post)
Sponsor's website: FCOM | ETF Snapshot - Fidelity
Expense Ratio: .084%
Current Position: 15 Shares
Maximum Position: 100 Shares
B. Bought 2 IEMG at $49.38:
Quote: iShares Core MSCI Emerging Markets ETF
Closing Price Last Friday: IEMG $49.69 +$0.37 +0.75%
Last Discussed: Item # 3.A. (4/7/19 Post)
Sponsor's Website: iShares Core MSCI Emerging Markets ETF
Morningstar: iShares Core MSCI Emerging Markets ETF ETF (IEMG)
Expense Ratio: .14%
Current Position: 12 Shares
Maximum Position: 50 Shares
5. Bought 100 SLV at $13.84 ($1 IB Commission):
Quote: iShares Silver Trust Overview
Closing Price Last Friday: SLV $14.07 +$0.15 +1.08%
Last Elimination: Item # 3.A. Sold 60 SLV at $15.18-Used Commission Free Trade (2/6/19 Post)
Precious metals entered a long term secular bear market in 2011 that has been difficult to trade profitably.
This buy was based on close to no thought after looking at this chart:
So far SLV has bounced off $13.5.
Gold and silver have moved up slightly in recent days as the USD declined in value: DXY | U.S. Dollar Index (DXY) Advanced Charts | MarketWatch
It is possible that a breakdown in trade negotiations with China and Mexico could cause a rise in PM prices.
Another reason for this trade was boredom.
I generally do not hold onto precious metal ETFs for long.
I play the long term secular trends with the bullion. I last sold bullion in September 2011 and January 2012. The bullion prices for silver and gold have not fallen enough for me to buy.
6. Portfolio Management-Tennessee Municipal Bonds:
I own longer term Tennessee municipal bonds in three taxable accounts.
The following are snapshots taken from my Fidelity account. Prices are invariably lower than fair market value and are based on estimates made by a third party pricing service.
The issuers generally reserve an optional redemption right at par value which can significantly impact the current prices.
The largest unrealized gains in the following snapshots come from low coupon bonds bought a deep discounts to par value. Some examples are in the Maury County GO bonds.
These bonds carry AA to AAA ratings and are mostly general obligation bonds. Some are issued by municipal owned utilities (water, electric or sewer) Tennessee is a public power state.
Par Value Priced at 100
Par Value: $1,000 per bond
Minimum Lot Sizes: 5 bonds and then in 5 bond increments
Maury County GO Bonds: Rated at Aa2 by Moody's
Emma page for 2.375% GO
Williamson County GO Bonds: Rated Aaa by Moody's
EMMA Page for 2032 GO
Knox County GO (rated Aa1 by Moody's) and City of Knoxville Gas and Electric (rated at Aa2)
Memphis and Shelby County: (Memphis GO rated at Aa2; Memphis Water Revenue rated at Aa1)
Nashville GO: (rated at Aa2 by Moody's)
Montgomery County GO Rated at AA+:
Emma Page for 2027 GO
Chattanooga Electric Revenue: (rated at AA+)
Sullivan (rated at Aa2 by Moody's) and Sumner County (rated at AA+ by S & P) GO Bonds:
Johnson City: (rated at Aa2 by Moody's)
Unlike most of the corporate bonds that I buy, these bonds are not liquid. When I purchased them, I had to accept the fact that I would probably hold them until maturity or an exercise of the optional redemption right. However, for some of the bonds bought at more than a 2% premium to par value (e.g. the 4% Chattanooga Electric), I may try to sell them when and if there is a further decline in interest rates, though that is not likely given the liquidity issue. The $5K 4% Chattanooga Electric bond can be called on or after 9/1/25 and represents the highest premium that I paid.
On an aggregate basis, the total invested was about $4K below par value.
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.
This article establishes that Trump did in fact fold on the Mexico tariffs.
ReplyDelete"Mexico Agreed to Take Border Actions Months Before Trump Announced Tariff Deal"
https://www.nytimes.com/2019/06/08/us/politics/trump-mexico-deal-tariffs.html?action=click&module=Top%20Stories&pgtype=Homepage
He folded, as I said in this post, on the key demand that Mexico accept a “safe third country” treaty.
On inversion, the article points out 3mo and 5 year are inverted for most of the quarter. Not yet for all of it. The 3mos and 10 year are not inverted for most of the quarter, just some.
ReplyDeleteSo it's that nearly a red flag indicator. A yellow flag but missing key parts to be red. Red doesn't mean something is closer. It means the model predicts it. Yellow means the model doesn't predict it but is keeping an eye out for red. (In what I've understood.)
So frustrating when signals aren't solidly one way or another.
The "this time is different" is definitely coming out. That itself is a flag of the 12-18 month recession indication.
--
Trump caved. He already had the deal that he wanted. He used this to get himself out of his border failure. It was a campaign move. In 3 months no mention of it will be made. No tariffs. Nothing. Very clever of him.
Except it puts fear into investors, which includes businessmen, so it is not good for the economy.
I am particularly bothered by the ISIS story. There is zero way a bunch of EU or English or Arabic speaking people who do almost certainly not speak Spanish, were at the border and not easily spottable. They wouldn't be coming in through caravan, since they'd stand out. Maybe as pretend tourists returning the US.
So the whole news event, is some kind of smoke and mirrors manipulation. That has a very dangerous effect of scaring people, which in turn ensconces their dedication to their leader.
At any rate I'm interested in your thougths on the yellow and red inversion flags. I need to go figure out how much of the quarter has been inverted.
When I looked, whole quarters aren't needed. So this expert's observations make me want to evaluate again. I have 10 year to 3mo as starting this time at May 23rd till now, and a few days in March. Do you have the 5 year chart. I don't see a chart for 5 year vs. 3month.
Land: I do not have a chart for the 5 year treasury minus the 3 month treasury bill. Here is one for the 5 year minus the federal funds rate which would be close:
Deletehttps://fred.stlouisfed.org/series/T5YFF
You can eyeball the inversion data using this 2019 table:
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2019
The 10 year minus the 3 month inversion started to occur persistently on 5/23/19 as you mentioned.
It looks like the date was 3/7/19 for the 5 year and 3 month.
The model developed by the Duke professor already has the recession forecast in the danger zone based on the history since 1980.
Bond yields are unattractive and that is a plus for stocks. The yield curve inversions mean that bond investors are not being paid to assume interest rate risks inherent in longer term bonds. That makes dividend growth stocks more attractive for yield hungry investors.
I view the cuts in the Federal Funds rate currently anticipated by the market as making stocks even more attractive as current income investments.
The problem for stock investors is that the market is simply not pricing in a garden variety recession within 12 to 18 months, let alone a severe one with a long and slow recovery period. That makes stock purchases now more dicey at current levels.
The current levels in major stock indexes indicate to me that the Stock Jocks are ignoring the danger signals being flashed by the yield curve inversion models and the decline in interest rates as well as economic indicators pointing to an ongoing slowdown and its currently unknown duration and depth.
My small ball "buying programs" in stock ETFs is on hold since I can not buy using what I call the small ball purchase restriction where each purchase has to be at the lowest price in the chain.
I am not even contemplating the possibility of buying an intermediate or long term bond given the yields. I am selling intermediate term corporate bonds into the bond rally.
*The whole quarter isn't an inversion.
ReplyDeleteNot: The whole quarter isn't needed.
That was a big typo.
The 2nd quarter started on April 1? Which reminds me, I need to change my furnace filter (every 3 months are up by now.)
DeleteOkay, back to markets.
The 3m/5y has been underwater for the quarter.
The 3m/10y is 5/23 and a few dibbles before that. So 2 1/2 weeks consistently.
So, it's in danger zone but not red flag zone.
So you're not buying because you are not able to buy lower than the last purchase... in other words the market is in an upswing, and (small as it is) and are using an unstable vix, buy on the way down, type model.
I considered buying today. It'd be at the same price I bought on the way down. So I skipped it. This may be a W on this particular jag anyway.
Land: To clarify, Left Brain has prohibited me from buying commission free stock ETFs unless each purchase is at the lowest price in the chain. The stock rally has triggered a purchase halt for all commission free stock ETFs subject to that restriction.
DeleteThis purchase restriction is similar to a Unstable Vix Pattern trading strategy when purchases are made during VIX spikes over 26 and then largely sold when and if the VIX returns to below 20 movement.
The broad similarity is in the sell the rips and buy the dips approach as you mentioned.
In the small ball purchase restriction for commission free stock ETFs, I am not limited to buying when the Vix spikes above 26, nor will I sell my highest cost lots when the movement is below 20 in the VIX which is the current movement.
Selling of the highest cost lot(s) may occur when and if SPX moves to new highs.
This purchase restriction is primarily a risk mitigation technique and only applies to commission free stock ETFs.
I am doing some very light buying and selling in individual securities.
For example, I will discuss in my next post the purchase of 50 THQ at $16.5 made on 6/3. That is a stock CEF.
https://www.cefconnect.com/fund/THQ
Healthcare companies are defensive investments when and if a recession occurs.
While this stock sector is not immune to a market meltdown, their profits will not take a bit hit.
The primary danger to profitability is not a recession but a massive change in laws impacting their profitability (e.g. drug price controls, Medicare for All)
I forgot about the VIX element in when using the pattern for unstable vix buying.
DeleteI am debating buying AMGN. It's down a little but not as much as I'd like. PE 14.
Also CRM - that did poorly off recent acquisition, and it's expectations to lower earnings. PE 99. So maybe I'll stay out.
Land: Buying stocks into VIX spikes can work in both the Stable and Unstable VIX (UVP) Patterns. There were spikes above 26 in February 2018 and December 2018, neither of which lasted long enough to form a Trigger Event. In both cases, the market quickly recovered as the VIX fell back into below 20 movement. I bought stocks during those spikes and have sold most of everything bought.
DeleteI would say that buying stocks during a VIX spike is probably safer in a Stable VIX Pattern (SVP) than the UVP.
Even if a Trigger Event forms that terminates the SVP, there has been a Recovery Period following the TE where the market goes back up and the VIX returns to below 20 movement which does not last for long for as long as the UVP remains in force.
Volatility spikes are a frequent and anticipated event in a UVP, and can be successfully traded PROVIDED a Catastrophic Event does not form.
You can see the trading pattern working, for example, from the August 2007 Trigger Event until September 2008. Buying the volatility spike in late September 2008 would have been a big mistake.
I personally do not buy stocks like CRM. It is a component of cloud software ETFs like Global X Cloud Computing ETF (CLOU) and First Trust Cloud Computing ETF (SKYY). I have traded SKYY.
I have bought and sold small lots of AMGN. I am not following either AMGN or CRM at the moment since I am mostly in my bomb shelter waiting for incoming and content with the price appreciation in my extremely overweighted bond allocation.
I did pull up a 2 year AMGN chart at Yahoo Finance.
If you do the same and move the horizontal cursor line to catch the 8/14/2017 price of $167, you can see the stock bouncing off that level multiple times to the present. The most recent test ended with a close at $166.7 (5/27/19).
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2019/06/observations-and-sample-of-recent_12.html