Economy:
ADP reported this morning that private sector employment increased by by 102,000 in June on a seasonally adjusted basis. According to Reuters, the consensus expectation was for a 140,000 gain in private payrolls last month. The goods producing sector lost 15,000 jobs. The May increase was only 41,000 (revised up from 27,000): ADP National Employment Report® - June 2019
The BLS is scheduled to release its June jobs report next Friday. The current consensus estimate is for a gain of 170,000 which includes both government and private payrolls. Job growth is slowing.
The ISM June 2019 Manufacturing PMI decreased to 51.7% from 52.1% in May. The new orders component fell 2.7 to 50. Any number below 50 indicates contraction.
ADP reported this morning that private sector employment increased by by 102,000 in June on a seasonally adjusted basis. According to Reuters, the consensus expectation was for a 140,000 gain in private payrolls last month. The goods producing sector lost 15,000 jobs. The May increase was only 41,000 (revised up from 27,000): ADP National Employment Report® - June 2019
The BLS is scheduled to release its June jobs report next Friday. The current consensus estimate is for a gain of 170,000 which includes both government and private payrolls. Job growth is slowing.
The ISM June 2019 Manufacturing PMI decreased to 51.7% from 52.1% in May. The new orders component fell 2.7 to 50. Any number below 50 indicates contraction.
Strong Canada April GDP suggests economic slowdown is ending - Reuters As noted earlier, I do not see how the Bank of Canada can lower its benchmark rate given Canada's recent economic numbers.
Construction spending in May declined by .8% compared to April 2019 and was down 2.3% Y-O-Y. Construction Spending May.pdf
The JPM Global Manufacturing PMI for June is in contraction territory, falling to 49.4 from 49.8 in May. The June reading is the lowest since October 2012. PMI Releases
China's manufacturing PMI for June declined to 49.4 from 50.2 in May.
I suspect that the modest reaction last Monday to the trade truce was due to the preceding negative economic data points. The stock market lost about 1/2 of its early morning gains by the close. The rally yesterday was somewhat encouraging in that more distance was created above the 2945-2955 resistance level.
SPX gained more upward momentum as the ten year treasury yield sank below 2%, closing at a 1.98% yield. The German 10 year bond is sinking further into negative nominal yield territory, closing at a -.38 nominal yield. Germany 10 Year Government Bond Overview
The probability of a .25% cut in the FF rate later this month remains at 100%. Countdown to FOMC: CME FedWatch Tool
China appears to be the winner of Trump-Xi meeting at G-20: Experts
It is material that Donald did not make matters worse by imposing 25% tariffs on China's remaining $300+B in exports. A worldwide recession would have likely resulted from that action and China's response to it.
Avoiding a bad economic outcome is not equivalent to reversing the current worldwide slowdown. And, it remains doubtful that Donald will be able to resolve the trade conflict with China except on terms acceptable to China.
Construction spending in May declined by .8% compared to April 2019 and was down 2.3% Y-O-Y. Construction Spending May.pdf
The JPM Global Manufacturing PMI for June is in contraction territory, falling to 49.4 from 49.8 in May. The June reading is the lowest since October 2012. PMI Releases
China's manufacturing PMI for June declined to 49.4 from 50.2 in May.
I suspect that the modest reaction last Monday to the trade truce was due to the preceding negative economic data points. The stock market lost about 1/2 of its early morning gains by the close. The rally yesterday was somewhat encouraging in that more distance was created above the 2945-2955 resistance level.
SPX gained more upward momentum as the ten year treasury yield sank below 2%, closing at a 1.98% yield. The German 10 year bond is sinking further into negative nominal yield territory, closing at a -.38 nominal yield. Germany 10 Year Government Bond Overview
The probability of a .25% cut in the FF rate later this month remains at 100%. Countdown to FOMC: CME FedWatch Tool
China appears to be the winner of Trump-Xi meeting at G-20: Experts
It is material that Donald did not make matters worse by imposing 25% tariffs on China's remaining $300+B in exports. A worldwide recession would have likely resulted from that action and China's response to it.
Avoiding a bad economic outcome is not equivalent to reversing the current worldwide slowdown. And, it remains doubtful that Donald will be able to resolve the trade conflict with China except on terms acceptable to China.
++++
Markets and Market Commentary:
Yield curve rapid steepening may be sending recession signal I have discussed this signal in prior posts. Once a yield curve inversion occurs, the normal course is for some portions of the yield curve to steepen prior to a recession's onset. The steepening is caused by a larger decline in short term rates as the FED responds to weakening economic conditions with rate cuts. Since that action generally occurs when the die is already cast, a recession occurs even though the FED is already in an easing mode.
I would just note that it is premature to conclude that a recession will happen within 12 to 18 months. The Stock Jocks are assigning a zero percent chance. The odds are probably closer to 30% with no new adverse developments in the trade wars.
I would just note that it is premature to conclude that a recession will happen within 12 to 18 months. The Stock Jocks are assigning a zero percent chance. The odds are probably closer to 30% with no new adverse developments in the trade wars.
Last week, Austria sold bonds maturing in September 2117 (no typo, 98 years) for a 1.171% yield which is juicy compared to a 5 year bond priced at -.435%. The five year German government bond is even deeper into negative nominal yield territory. Germany 5 Year Government Bond
Yields: 10-year Treasury under 2%, German 10-year falls to record low
The decline in interest rates has made stocks the only game in town for investors desiring a real total return after taxes. The two year treasury note closed yesterday at a 1.77% yield, down 85 basis points from it 2019 high yield of 2.62%. 2019 Daily Treasury Yield Curve Rates
Yields: 10-year Treasury under 2%, German 10-year falls to record low
The decline in interest rates has made stocks the only game in town for investors desiring a real total return after taxes. The two year treasury note closed yesterday at a 1.77% yield, down 85 basis points from it 2019 high yield of 2.62%. 2019 Daily Treasury Yield Curve Rates
Saving for Retirement? Forget About Beating the S&P 500.
Old age doesn’t kill economic expansions — and the usual culprits are nowhere in sight - MarketWatch
OPEC confirms a 9-month extension to output curbs, supports charter to formalize producer alliance - MarketWatch
Trade truce could give stocks a ‘one-day pop’ —and then watch out, warns Morgan Stanley’s Wilson - MarketWatch
+++++++
Trump:
According to a recent poll, only 37% of voters believe that Despicable Don should be reelected in 2020. All The President’s Trends | Monmouth University Polling Institute This poll and similar ones may moderate the Duck's behavior some prior to the election and may be the real reason why he called off the Iran strike.
Trump’s overall approval rating is 38% despite a good economy - MarketWatch Trump is his own worst enemy. He is widely viewed as one disgusting and loathsome creature. And, that is on him, not the "Enemy of the People".
Fortunately for Donald, the current crop of clueless Democrat contenders are doing whatever they can to turn off marginal Trump voters and independents.
Many pundits applauded Senator Harris' attack on Fumbling Joe Biden's opposition to court ordered busing that gain nationwide momentum starting in the 1960s. Biden would have been better off just firing back listing the reasons for his opposition.
I thought that it was idiotic to resurrect school busing as a litmus test for a Democrat candidate for several reasons.
The busing issue is mostly dead now; the consensus is that busing did not work longer term as a means to desegregate schools given geographic concentrations of races; opposition to busing far exceeds support among independents and marginal supporters from each political tribe; and a typical response among those who are not racist would be "why punish children for the sins of their ancestors".
One of the first Gallup polls on the subject was in the early 1970s and found that busing was supported by 4% of the caucasians and 9% of African Americans. Desegregation busing - Wikipedia
Trump's Baseless Accusation of Mueller 'Crime' - FactCheck.org
+++
According to a recent poll, only 37% of voters believe that Despicable Don should be reelected in 2020. All The President’s Trends | Monmouth University Polling Institute This poll and similar ones may moderate the Duck's behavior some prior to the election and may be the real reason why he called off the Iran strike.
Trump’s overall approval rating is 38% despite a good economy - MarketWatch Trump is his own worst enemy. He is widely viewed as one disgusting and loathsome creature. And, that is on him, not the "Enemy of the People".
Fortunately for Donald, the current crop of clueless Democrat contenders are doing whatever they can to turn off marginal Trump voters and independents.
Many pundits applauded Senator Harris' attack on Fumbling Joe Biden's opposition to court ordered busing that gain nationwide momentum starting in the 1960s. Biden would have been better off just firing back listing the reasons for his opposition.
I thought that it was idiotic to resurrect school busing as a litmus test for a Democrat candidate for several reasons.
The busing issue is mostly dead now; the consensus is that busing did not work longer term as a means to desegregate schools given geographic concentrations of races; opposition to busing far exceeds support among independents and marginal supporters from each political tribe; and a typical response among those who are not racist would be "why punish children for the sins of their ancestors".
One of the first Gallup polls on the subject was in the early 1970s and found that busing was supported by 4% of the caucasians and 9% of African Americans. Desegregation busing - Wikipedia
Trump's Baseless Accusation of Mueller 'Crime' - FactCheck.org
+++
Supreme Court Census Citizenship Question:
I was surprised by Justice Roberts joining the four "liberal" justices.
The proof was that the republicans wanted to add a citizenship question for impermissible reasons.
Justice Roberts used about every word possible other than "lie" to describe the reasons given by the Trump administration.
There was a “a significant mismatch between the decision . . . and the rationale.”
"The evidence tells a story that does not match the . . . explanation.”
“The sole stated reason — seems to have been contrived.”
The rational given was a “distraction” from the truth.
The purported rationale for the question was " incongruent with what the record reveals.”
Trump wants to delay census after Supreme Court ruling on citizenship question - CBS News; Trump looking 'very strongly' at delaying census Perhaps someone who does not value their job in the Trump administration needs to inform the Duck that the census has been taken every ten years since 1790 because that is required in the Constitution. Census in the Constitution It is also required by statute. U.S. Code: Title 13. CENSUS So far, no court has ruled that Donald can change the Constitution through executive orders.
The Justice Department has now decided that the census questionnaire will be printed without the citizenship question. CNN
++++
Supreme Court Political Gerrymandering Question:
The Supreme Court has in the past viewed non-racially biased gerrymandering as a "political question" that is not subject to judicial review.
The recently announced decision in Rucho v. Common Cause is not surprising. SCOTUS Gerrymandering Ruling Leaves States to Fight It Out | Time Reforms of the process will now have to occur at the state level.
Without question, both political tribes have a long history of depriving the other side of congressional and state legislative seats based on politically motivated gerrymandering.
The problem IMO is that the issue has always been a constitutional one involving the most fundamental right in a democracy and is consequently justiciable, notwithstanding the Supreme Court's refusal to initiate federal court review.
I would agree with the four dissenting justices that federal court review of gerrymandered congressional districts is long overdue.
Only the most blatant examples, such as the congressional districts drawn in Ohio, would be subject to judicial review and relief.
The Pennsylvania Supreme Court recently undertook that task using well defined standards. Pa. Supreme Court strikes down congressional map as unconstitutional, orders change (U.S. Supreme Court refused to hear appeal); The nationwide battle over gerrymandering is far from over - POLITICO
Even impartially drawn districts would not solve the basic issue that political ideology and party affiliations are concentrated in geographical locations that have persisted over long periods of time.
The geographical distinctions include coastal areas vs. the heartland, South/Midwest/Plains vs. West Coast/Northeast/New England, and most importantly urban vs. rural. Impartially drawn districts will not solve those differences.
The Justice Department has now decided that the census questionnaire will be printed without the citizenship question. CNN
++++
Supreme Court Political Gerrymandering Question:
The Supreme Court has in the past viewed non-racially biased gerrymandering as a "political question" that is not subject to judicial review.
The recently announced decision in Rucho v. Common Cause is not surprising. SCOTUS Gerrymandering Ruling Leaves States to Fight It Out | Time Reforms of the process will now have to occur at the state level.
Without question, both political tribes have a long history of depriving the other side of congressional and state legislative seats based on politically motivated gerrymandering.
The problem IMO is that the issue has always been a constitutional one involving the most fundamental right in a democracy and is consequently justiciable, notwithstanding the Supreme Court's refusal to initiate federal court review.
I would agree with the four dissenting justices that federal court review of gerrymandered congressional districts is long overdue.
Only the most blatant examples, such as the congressional districts drawn in Ohio, would be subject to judicial review and relief.
The Pennsylvania Supreme Court recently undertook that task using well defined standards. Pa. Supreme Court strikes down congressional map as unconstitutional, orders change (U.S. Supreme Court refused to hear appeal); The nationwide battle over gerrymandering is far from over - POLITICO
Even impartially drawn districts would not solve the basic issue that political ideology and party affiliations are concentrated in geographical locations that have persisted over long periods of time.
The geographical distinctions include coastal areas vs. the heartland, South/Midwest/Plains vs. West Coast/Northeast/New England, and most importantly urban vs. rural. Impartially drawn districts will not solve those differences.
++++
1. Added 50 PPLPRC at C$15.9 (C$1 IB Commission):
Quote: PPL-PC.TO
Issuer: Pembina Pipeline
USD Priced Common Stock: Pembina Pipeline Corp. (U.S.: NYSE)
CAD Priced Common Stock: Pembina Pipeline Corp (Canada: Toronto)
Last Earnings Report: Pembina Pipeline Corporation Reports First Quarter Results
I now own 200 shares and will not be averaging down further. The recent purchases of Canadian reset equity preferred stocks are one response to the decline in interest rates.
Last Buy Discussions: Item # 1.B. Bought 50 PPLPRC at C$ 17.23 (5/25/19 Post); Item # 1.A. Bought 100 PPL.PR.C. at C$17.7 (3/23/19 Post)
Security Description (dragged and dropped from prior discussion):
This reset equity preferred stock recently reset for five years at a 2.6% spread to a 1.878% five year Canadian government bond. Par value is C$25.
As with other reset preferred stocks that pay a spread over the 5 year bond, the owner has the option to convert into another preferred stock that pays the 2.6% spread over the 3 month Canadian treasury bill, subject to certain conditions.
At a 4.478% coupon and a C$15.9 price, the dividend yield would be about 7.04%.
I have one previous round trip realizing a gain of C$496: Stocks, Bonds & Politics: Item # 2.B. Sold 100 PPLPRC:CA-Item # 4 Bought 100 PPLPRC at C$16.66 Update For Exchange Traded Bonds And Preferred Stocks Basket Strategy As Of 5/20/16 - South Gent | Seeking Alpha
1. Added 50 PPLPRC at C$15.9 (C$1 IB Commission):
Quote: PPL-PC.TO
Issuer: Pembina Pipeline
USD Priced Common Stock: Pembina Pipeline Corp. (U.S.: NYSE)
CAD Priced Common Stock: Pembina Pipeline Corp (Canada: Toronto)
Last Earnings Report: Pembina Pipeline Corporation Reports First Quarter Results
I now own 200 shares and will not be averaging down further. The recent purchases of Canadian reset equity preferred stocks are one response to the decline in interest rates.
Last Buy Discussions: Item # 1.B. Bought 50 PPLPRC at C$ 17.23 (5/25/19 Post); Item # 1.A. Bought 100 PPL.PR.C. at C$17.7 (3/23/19 Post)
Security Description (dragged and dropped from prior discussion):
This reset equity preferred stock recently reset for five years at a 2.6% spread to a 1.878% five year Canadian government bond. Par value is C$25.
The new coupon will be 4.478% to, but excluding March 1, 2024. At that time, the issuer has the option to redeem at the C$25 par value. If that option is not exercised, then the coupon will reset again for 5 years at the same 2.6% spread to the then existing 5 year bond.
As with other reset preferred stocks that pay a spread over the 5 year bond, the owner has the option to convert into another preferred stock that pays the 2.6% spread over the 3 month Canadian treasury bill, subject to certain conditions.
At a 4.478% coupon and a C$15.9 price, the dividend yield would be about 7.04%.
I have one previous round trip realizing a gain of C$496: Stocks, Bonds & Politics: Item # 2.B. Sold 100 PPLPRC:CA-Item # 4 Bought 100 PPLPRC at C$16.66 Update For Exchange Traded Bonds And Preferred Stocks Basket Strategy As Of 5/20/16 - South Gent | Seeking Alpha
2. Short Term Bond/CD Ladder Basket Strategy:
$7K in Adds:
Short term CDs continue to drift down in yield. In my Schwab account, I am still buying short term CDs with proceeds from maturing securities. The CD rates are better than the comparable maturity treasury bills. The sweep account option at Schwab pays .3%.
$7K in Adds:
Short term CDs continue to drift down in yield. In my Schwab account, I am still buying short term CDs with proceeds from maturing securities. The CD rates are better than the comparable maturity treasury bills. The sweep account option at Schwab pays .3%.
A. Bought 3 Bank of East Asia 2.35% CDs Maturing on 9/23/19 (3 month CDs):
B. Bought 1 XCEL 2.4% SU Maturing on 3/15/21:
I now own 2 bonds. The other one was bought at a TC of 98.696 (3/6/18).
Finra Page: Bond Detail
Issuer: Xcel Energy (XFL), an electric utility holding company
XEL | Xcel Energy Inc. Analyst Estimates
Finra Page: Bond Detail
Issuer: Xcel Energy (XFL), an electric utility holding company
XEL | Xcel Energy Inc. Analyst Estimates
Xcel Energy First Quarter 2019 Earnings Report
Xcel SEC Filings
2018 Annual Report
Last Bond Offering Prospectus
Credit Ratings:
Bought at a Total Cost of 99.862 (with $1 commission)
YTM at TC Then at 2.48%
Current Yield at TC = 2.4033%
Bought at 99.782
The operating subsidiaries generally issue first mortgage bonds that are not guaranteed by the parent Xcel. I own first mortgage bonds issued by the Xcel wholly owned subsidiaries Northern States Power of Minnesota and Public Service of Colorado which have higher credit ratings than Xcel SU debt.
Xcel SEC Filings
2018 Annual Report
Last Bond Offering Prospectus
Credit Ratings:
Bought at a Total Cost of 99.862 (with $1 commission)
YTM at TC Then at 2.48%
Current Yield at TC = 2.4033%
Bought at 99.782
The operating subsidiaries generally issue first mortgage bonds that are not guaranteed by the parent Xcel. I own first mortgage bonds issued by the Xcel wholly owned subsidiaries Northern States Power of Minnesota and Public Service of Colorado which have higher credit ratings than Xcel SU debt.
C. Bought 3 Santander Bank 2.35% CDs Maturing on 9/26/19 (3 month CDs):
Santander Bank, N.A. Reviews and Ratings - Bankrate.com: Rated 4 stars
3. Intermediate Term Investment Grade Corporate Bond Ladder Basket Strategy:
A. Sold 2 FedEx 2.7% SU Maturing on 4/15/23:
Profit Snapshot: +$31.37
Finra Page: Bond Detail
Issuer: FedEx Corp. (FDX)
Sold at 100.51
YTM at 100.51 = 2.589%
Proceeds at 100.41
My last trade was to buy 3 FDX 2.3% SU bond maturing on 2/1/20 at a total cost of 99.598, creating a YTM at that TC number of 2.75%. Item # 2.A. (3/20/19 Post) That purchase brought me up to 5 bonds.
4. Eliminations:
A. Sold 30 NYMTN at $24.56 ($1 IB Commission):
Quote: New York Mortgage Trust Inc. Series D Preferred Stock (NYMTN)
Profit Snapshot: $48
Item # 1.B. Bought 30 NYMTN at $22.9(12/8/18 Post)
This transaction eliminates my MREIT preferred stock positions.
Security: Prospectus
Par Value: $25
Issuer Right to Redeem: On or After 10/15/2027 generally with two exceptions
Dividends: Quarterly, Cumulative and Non-Qualified
Fixed Rate: 8% prior to 10/15/2027
Floating Rate: 3 Month Libor + 5.695% on and after 10/15/2027 unless issuer exercises its right to redeem at par value
5. Portfolio Management-Utility Bonds in a Roth IRA Account:
My Roth IRA accounts are managed more conservatively than the conservatively managed taxable accounts.
The overriding goal is capital preservation since I have no need to grow capital in those accounts.
I will most likely leave them undisturbed for my heirs.
No funds will be withdrawn from the IRA accounts until every other source is completely depleted. In the highly improbable event the IRA money is ever needed, it will need to be there rather than in money heaven.
When selecting bonds to own in my Roth IRA accounts, I will buy utility bonds based on the relative safety and the widespread availability of first mortgage bonds in that sector.
Several publicly traded utility companies are simply holding companies that own stock in operating electric and gas companies.
When the holding company owns both electric and gas operations, those operations are frequently divided into two separate companies.
Holding companies that own operating subsidiaries in several states may have different corporate entities for each state. An example would be Entergy (ETR) that owns Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas.
Each of those publicly traded subsidiaries issue first mortgage bonds that attach to substantially all assets owned by each issuer.
Those bond are not guaranteed by the parent Entergy which issues senior unsecured debt that has lower credit ratings (Baa2/BBB) than the first mortgage debt issued by its subsidiaries.
The Entergy subsidiaries will issue stock exchange traded first mortgage bonds ($25 par value) and $1K par value first mortgage bonds traded in the bond market. All of the bonds have equal priority on the first lien assets, and there are limits on how many first mortgage bonds can be issued by the respective companies.
Xcel Energy Inc. (XEL) is another holding company whose operating subsidiaries issue first mortgage bonds. Those subsidiaries include Public Service of Colorado and Northern States Power (MINN).
CenterPoint Energy (CNP) and Consolidated Edison (ED) directly issue mortgage bonds.
Duke Energy Corp. (DUK) is another holding company whose operating subsidiaries will issue first mortgage bonds.
Virginia Electric and Gas is a subsidiary of Dominion Energy.
Tampa Electric is now owned by the Canadian electric and gas utility company Emera Inc.
The following are snapshots of only utility bonds owned in a Roth IRA account.
Total Par Value in this Roth IRA account= $24K
Consisting of
Electric Utility Mortgage Bonds = $14K
Electric Utility Senior Unsecured Bonds: $10K
The mortgage bonds are identified in the description except for the Centerpoint 2021 Bond, which is a mortgage bond.
I have recently pared my bond allocation in this account including utility first mortgage bonds. The preceding snapshot includes only utility bonds that I currently own in this Roth IRA account.
6. Portfolio Management-Cash Flow:
In a prior post, I copied cash flow entries into my taxable Fidelity account (1 of 5 taxable accounts) for 7/1.
The following snapshots show entries from 6/28/19 through 7/1 in my Schwab account.
This account is the most CD heavy, mostly 1 or 2 CD lots that make monthly interest payments.
I am reinvesting the dividend paid by the leveraged CEF DPG that will total close to $400 annually. Duff & Phelps Global Utility Income Fund Inc. Overview. I last discussed this CEF in this post: Item # 5 Bought 50 DPG at $12.87 (1/9/2019 Post)
The snapshots include dividend reinvestments for small BDC positions in OFS, TCRD and PFLT. The quarterly dividend for FSK, a loser and deservedly hated BDC, is shown as received but not yet used to purchase shares.
I received semi-annual tax free interest payments from the Tennessee Housing Development Agency ($229.38); Metro Nashville Airport Authority ($96.88); Metropolitan Nashville GO ($62.5); and Knoxville Tennessee Electric Utility ($75).
Total Tax Free Interest Schwab Account for July = $463.76
Proceeds from maturing treasuries and CDs highlight my most important portfolio management problem.
Two CDs matured ($2K Sonabank; $3K Bar Harbor) bringing in $5K in proceeds.
Of the $8K in treasury bill proceeds, I am using $5K to buy a two month treasury bill that will be auctioned today. This is no brainer alternative to idle funds in my Schwab sweep account that currently receive a .26% yield:
The 1 and 2 month bills are normally auctioned on a Thursday, but have been moved forward due to the holiday celebrating the heroics of Bone Spur Donald, the greatest of the great Americans. Donald Trump is taking over Fourth of July in DC
Park Service diverts $2.5 million in fees for Trump's July Fourth extravaganza - The Washington Post The money was "primarily intended to improve parks across the country."
A. Sold 30 NYMTN at $24.56 ($1 IB Commission):
Quote: New York Mortgage Trust Inc. Series D Preferred Stock (NYMTN)
Profit Snapshot: $48
Item # 1.B. Bought 30 NYMTN at $22.9(12/8/18 Post)
This transaction eliminates my MREIT preferred stock positions.
Security: Prospectus
Par Value: $25
Issuer Right to Redeem: On or After 10/15/2027 generally with two exceptions
Dividends: Quarterly, Cumulative and Non-Qualified
Fixed Rate: 8% prior to 10/15/2027
Floating Rate: 3 Month Libor + 5.695% on and after 10/15/2027 unless issuer exercises its right to redeem at par value
5. Portfolio Management-Utility Bonds in a Roth IRA Account:
My Roth IRA accounts are managed more conservatively than the conservatively managed taxable accounts.
The overriding goal is capital preservation since I have no need to grow capital in those accounts.
I will most likely leave them undisturbed for my heirs.
No funds will be withdrawn from the IRA accounts until every other source is completely depleted. In the highly improbable event the IRA money is ever needed, it will need to be there rather than in money heaven.
When selecting bonds to own in my Roth IRA accounts, I will buy utility bonds based on the relative safety and the widespread availability of first mortgage bonds in that sector.
Several publicly traded utility companies are simply holding companies that own stock in operating electric and gas companies.
When the holding company owns both electric and gas operations, those operations are frequently divided into two separate companies.
Holding companies that own operating subsidiaries in several states may have different corporate entities for each state. An example would be Entergy (ETR) that owns Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas.
Each of those publicly traded subsidiaries issue first mortgage bonds that attach to substantially all assets owned by each issuer.
Those bond are not guaranteed by the parent Entergy which issues senior unsecured debt that has lower credit ratings (Baa2/BBB) than the first mortgage debt issued by its subsidiaries.
The Entergy subsidiaries will issue stock exchange traded first mortgage bonds ($25 par value) and $1K par value first mortgage bonds traded in the bond market. All of the bonds have equal priority on the first lien assets, and there are limits on how many first mortgage bonds can be issued by the respective companies.
Xcel Energy Inc. (XEL) is another holding company whose operating subsidiaries issue first mortgage bonds. Those subsidiaries include Public Service of Colorado and Northern States Power (MINN).
CenterPoint Energy (CNP) and Consolidated Edison (ED) directly issue mortgage bonds.
Duke Energy Corp. (DUK) is another holding company whose operating subsidiaries will issue first mortgage bonds.
Virginia Electric and Gas is a subsidiary of Dominion Energy.
Tampa Electric is now owned by the Canadian electric and gas utility company Emera Inc.
The following are snapshots of only utility bonds owned in a Roth IRA account.
Consisting of
Electric Utility Mortgage Bonds = $14K
Electric Utility Senior Unsecured Bonds: $10K
The mortgage bonds are identified in the description except for the Centerpoint 2021 Bond, which is a mortgage bond.
I have recently pared my bond allocation in this account including utility first mortgage bonds. The preceding snapshot includes only utility bonds that I currently own in this Roth IRA account.
6. Portfolio Management-Cash Flow:
In a prior post, I copied cash flow entries into my taxable Fidelity account (1 of 5 taxable accounts) for 7/1.
The following snapshots show entries from 6/28/19 through 7/1 in my Schwab account.
This account is the most CD heavy, mostly 1 or 2 CD lots that make monthly interest payments.
I am reinvesting the dividend paid by the leveraged CEF DPG that will total close to $400 annually. Duff & Phelps Global Utility Income Fund Inc. Overview. I last discussed this CEF in this post: Item # 5 Bought 50 DPG at $12.87 (1/9/2019 Post)
The snapshots include dividend reinvestments for small BDC positions in OFS, TCRD and PFLT. The quarterly dividend for FSK, a loser and deservedly hated BDC, is shown as received but not yet used to purchase shares.
I received semi-annual tax free interest payments from the Tennessee Housing Development Agency ($229.38); Metro Nashville Airport Authority ($96.88); Metropolitan Nashville GO ($62.5); and Knoxville Tennessee Electric Utility ($75).
Total Tax Free Interest Schwab Account for July = $463.76
Proceeds from maturing treasuries and CDs highlight my most important portfolio management problem.
Two CDs matured ($2K Sonabank; $3K Bar Harbor) bringing in $5K in proceeds.
Of the $8K in treasury bill proceeds, I am using $5K to buy a two month treasury bill that will be auctioned today. This is no brainer alternative to idle funds in my Schwab sweep account that currently receive a .26% yield:
The 1 and 2 month bills are normally auctioned on a Thursday, but have been moved forward due to the holiday celebrating the heroics of Bone Spur Donald, the greatest of the great Americans. Donald Trump is taking over Fourth of July in DC
Park Service diverts $2.5 million in fees for Trump's July Fourth extravaganza - The Washington Post The money was "primarily intended to improve parks across the country."
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.
S&P 500 Index
ReplyDelete2,995.82 + 22.81 +0.77%
The market closed early today and will be closed tomorrow for Donald Trump day.
SPX has now moved sufficiently above the prior triple top ceiling range (2945-2955) that it is probably in a break out mode.
I say probably only because this is a holiday shortened trading week.
If the upside momentum continues next week, then I will legitimize this latest spurt as an upside break out; but I would add the caveat that no one knows where the next resistance level will form.
I view the stock market's break out as an investor response to rapidly declining interest rates and an unjustified belief that the FED can solve the U.S. economy's problems with a FF rate cut.
The world is awash in over $13 trillion in nominal negative yield debt and a larger amount in negative real return debt that has nominal positive yields.
The ten year treasury yield is currently at a 1.95%+ yield.
https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx
The 56 day treasury bill was auctioned today to produce a 2.198% IR.
The stock market is down in pre-opening trading in response to the better than expected jobs report. Interest rates are trending up and gold is in a dive mode.
ReplyDeletehttps://www.marketwatch.com/story/hiring-rebounds-in-june-as-us-creates-224000-jobs-unemployment-rises-to-37-2019-07-05?mod=mw_theo_homepage
Stocks have been in a rally mode this year since the FED did a 180 about increasing the FF rate and were fueled even higher by the prospects of rate cuts.
The question that may be causing concern so far today is why would the FED cut the FF rate when the economy is adding 200+K jobs per month and producing 2%+ real GDP growth annually.
The fact that the Donald and the Stock Jocks are demanding a rate cut is not a legitimate reason.
I have been arguing that there is no legitimate reason for a rate cut now. Maybe one will develop later in the year. The current FF range is not a problem for the real economy.
The odds of a .5% FF cut his month have plummeted this morning, falling from 29.2% on 7/3 to just 9% which is too high IMO (as of 8:00 C.S.T.)
I would put the probability of a .5% this month at zero. The probability of a .25% cut is still at 100%.
https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Looking at probabilities on or before the September FED meeting, however, the Bond Ghouls are still forecasting that it is more likely than not the FF range will be .5% lower than the current 2.25%-2.5%, but the odds are coming down.
The probability of a .5% lower FF range on or before the December meeting is at 88% down from 92% on 7/3/19.
The stock market almost recovered from an early morning sell-off that took SPX down to 2,967.97 but could not mount a charge yet to pierce 3000:
ReplyDeleteS&P 500 Index 2,990.41 -5.41 -0.18%
DAY RANGE 2,967.97 - 2,994.03
It would be better for the real economy to have 200K+ monthly job gains and wage growth over 3% than a .5% cut in the FF rate.
The .25% cut is still at 100% when the FED meets later this month. I doubt the FED will disappoint the Stock Jocks and Donald by holding pat. Investors are just too addicted to ridiculously low interest rates worldwide. Withdrawal symptoms resulting from a return to normalized rates would be severe for the Stock Jocks.
I would note that the odds of another .25% decrease after the July meeting is more iffy IMO than the FED futures currently indicate. While the FED may not entirely lose its credibility with a .25% cut this month, it would be hard pressed to justify another cut with economic numbers similar to the jobs report today, continued real GDP growth of 2+% annually, unemployment below 4%, and with inflation hanging tough at near 2%.
Sticky price CPI is at 2.3% on an annualized basis:
https://www.frbatlanta.org/research/inflationproject/stickyprice.aspx
Median CPI is running at a 2.7% Y-O-Y rate:
https://www.clevelandfed.org/our-research/indicators-and-data/median-cpi.aspx
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2019/07/observations-and-sample-of-recent.html