Economy:
As expected, the FED raised the FF rate by .25%. The new range is 5.25% to 5.5%. Federal Reserve issues FOMC statement The new rate is a 22 year high.
The government currently estimates that real GDP increased at a 2.4% annual rate in the second quarter, higher than the consensus. GDP 2nd Quarter.pdf
The growth in personal consumption expenditures was estimated at 1.6%, down from 4.2% in the 2023 first quarter. Most of the PCE growth was in services rather than goods:
 |
| Table 1 |
The monthly PCE price index is released as part of the Income and Outlays reports. The report for June was released yesterday. Personal Income and Outlays, June 2023 | U.S. Bureau of Economic Analysis (BEA)
Annual Core PCE Prices: 4.1%, down from 4.6% through May
Annual Total PCE Prices: 3%, down from 3.8% through May
10 years of rally in U.S. house prices could end, says Robert Shiller
Pending Home Sales Rose 0.3% in June, First Increase in Three Months (The pending home sales index was down 15.6% Y-O-Y)
The average annual homeowner insurance premium in Florida has increased by over 100% in three years. The annual average is now at about $6,000 and is expected to rise to $9,000 next year. Hurricane Ian caused over $112B in damage last year. One major insurance company, Farmers, has left the state and others may follow.
With Hurricane Season Looming, Florida Faces an Insurance Meltdown | Barron's
My last annual insurance premium on my home was $1,466 this year. Annual property taxes, county and city, are about $2,700. The house is worth about $820,000.
According to the Kelly Blue Book, the average transaction price for a new vehicle purchased in the U.S. was $48,808 in June. Average New Car Price Hit $48,808 in June - Kelley Blue Book The average used car price was $27,147. Average Used Car Price Held Steady in June - Kelley Blue Book I am still driving a 2007 Saturn Aura which runs just fine. I bought the car new and paid about $21K as I recall.
I am becoming more concerned about the high prices for homes and cars when inflation has driven the cost up of necessary expenditures. The squeeze on discretionary spending has to be tightening for most households, mostly in the bottom 4 quintiles of annual income.
The number of middle income households that can no longer afford a median price house has to be rising significantly as well.
 |
| December 2024 |
+++++
Allocation Shifts Discussed in this Post:
Corporate Bonds: +$6,000 in principal amount excluding proceeds from a 2 bond sale.
Treasury Bills Purchased at Auction: $7,000 in principal amount
CDs: $1,000
Net Outflow U.S. Common Stocks: -$480.51
(consisting of $1,182.47 in proceeds and $701.96 in purchases)
Canadian Stock: +C$3,417 (valued at US$2,562.75)
Net Inflow Common Stocks: +$2,082.24
Equity Preferred Stocks: +$217.25 (yield at 8.2%)
2023 Net Outflow Common Stocks/Stock Funds= -$32,115.22
+++++
Putin and His Servile Orcs:
Ukraine war: Kyiv claims success as southern fighting intensifies - BBC News
Thomas Graham, senior fellow at the Council of Foreign Relations, made this comment about a peace agreement: "The Russians are more than happy to talk about Ukraine’s capitulation, I don’t think they are seriously interested in any talks about a resolution of the Ukraine crisis short of that at this point."
Putin told African leaders last week that Russia voluntarily withdrew its forces from Kiev last year to create the conditions for a peace agreement. This is an alternate reality creation worthy of Trump. Russia withdrew because it was defeated as everyone who has access to accurate information knows.
Putin has placed himself in a box with no escape hatch other than Ukraine's capitulation. If that requires the loss of 1 million Russian lives and a collapse of the Russian economy, then that is acceptable to Putin since both his life and power are at risk unless Russia's invasion succeeds in turning Ukraine into another Belarus at a minimum.
The Ukrainians will fight the Russian invaders until there is no capacity left to fight or victory.
While there will always be profound disagreements about policy matters in the U.S., with many citizens having low opinions about the U.S. President and Congress, there is no doubt that everyone would unite to fight a Russian invasion force crossing the border. For some reason, Putin was incapable of comprehending why Ukrainians would resist being ruled by a Putin installed puppet regime becoming another Belarus whose independence is only an illusion.
Why Putin disastrously Invaded Ukraine. Here's What happened. - YouTube
The Orcs expanded their attacks on the world's grain supply last week by destroying Ukrainian grain stored near the border with Romania. Ukraine war: Russia attacks grain stores at River Danube ports - BBC News That facility is located just across the Danube river from Romania. Russia used drones that lack accuracy. No sane Russian leader would risk one of the missiles or drones hitting a target in Romania, a NATO member, just to destroy food supplies intended for export to countries who need it. This attack is just another example of Putin's atrotriously bad judgment.
The war in Ukraine has reminded people throughout the world that Russia is a both a terrorist and an Orwellian state. It would be extremely foolish IMO to believe that will ever change.
In the past, Putin has threatened to invade Poland, Romania and the Baltic States, triggering a war with NATO. Putin 'privately threatened to invade Poland, Romania and the Baltic states'
Putin has recently threatened Poland. Putin threatening to 'use Wagner fighters to invade strip of land between Poland and Lithuania' | Daily Mail Online; Tensions Heat Up Between Russia and Poland This narrow strip of land is called the Suwalki Corridor or Gap. The most dangerous place on earth – POLITICO; Explainer: Suwalki Gap and Lithuania-Russia face-off over Kaliningrad – EURACTIV.com
Putin claims that Poland wants to annex western Ukraine. Putin Warns That Ukraine Could Be Invaded and Occupied by Poland
If Putin wants to start a war with NATO to further distract Russians from his many failures as an incompetent authoritarian leader for life, notwithstanding his army's inability to beat a much smaller Ukrainian army even after suffering massive losses in both men and material, then his mental illnesses have probably been severely aggravated by dementia that has led to him having even more delusional thoughts unmoored from reality. Putin's Bizarre Memory Lapse Sparks 'Dementia' Rumors
Russian missile strikes hit Ukrainian city of Odesa, killing at least 1 and damaging historic cathedral - CBS News; ODESA MASSIVE ATTACKS. Vlog 430: War in Ukraine-YouTube Those terrorist attacks occurred last Sunday. The Orcs targeted the historic Transfiguration Cathedral for destruction. Historic Ukrainian cathedral badly damaged in Russian strikes | CNN The Russian attacks included other structures in Odessa that had been designated by UNESCO as protected historic sites. Children were among those injured in this Russian terrorist attack.
Russia starved millions in Ukraine during what is known as Holodomor.
How Joseph Stalin Starved Millions in the Ukrainian Famine | HISTORY
Ukrainians are breaking their ties with the Russian language - The Washington Post A new generation of Ukrainians have grown to hate Russians, and deservedly so.
Putin appeared paralyzed and unable to act in first hours of rebellion - The Washington Post
In a recently published article, Anne Applebaum brought attention to Russia building gulags to imprison and torture Ukrainians. Russia Has a New Gulag - The Atlantic; Incompetence and Torture in Occupied Ukraine - The Atlantic This is to be expected from Russians and would happen in any country invaded by them.
What watching five straight days of Russian TV reveals about Putin’s Russia - YouTube
Video: See what Ukraine is using to attack Russia in the Black Sea | CNN (the sea drone carries 700 pounds of explosives and is capable of hitting a target 500 miles from the coast)
+++
Trump and His Deeply Reactionary, Anti-Democracy, Science Denying, Fact Free Conspiracy Generating Trumpsters:
RealClearPolitics - 2024 Republican Presidential Nomination
RealClearPolitics - Election 2024 - General Election: Trump vs. Biden
New criminal charges were filed against Trump and two other individuals in the documents case. READ: New charges in Trump Mar-a-Lago classified documents case (see pages 27-30 that summarizes the information that the government claims supports the the new obstruction charge); The incredibly damaging timeline of the alleged Mar-a-Lago coverup - The Washington Post
Some of the evidence is summarized in these excerpts:
 |
| P.27 |
The government alleges that Trump, Walt Nauta and a new defendant Carlos De Oliveira requested another employee, Yuscil Taveras ("Trump Employee 4"), to delete security footage to keep it from prosecutors. The government served a subpoena for the video footage that showed Walt Nauda, who was previously charged, moving documents out of storage. The video is now a central piece of evidence in the obstruction of justice charges.
‘2000 Mules’ but No Evidence - WSJ This "documentary" of alleged voter fraud was narrated by Dinesh D'Souza and funded by True the Vote who has raised millions. True the Vote Raised Millions to Combat Voter Fraud—But No One Really Knows Where the Money Went This organization filed claims in Georgia and Arizona alleging voter fraud in the 2020 election. Georgia sued the group demanding evidence of its claims, but True the Vote refused to comply with a subpoena and attempted to withdraw its complaint rather than to comply. Georgia sues True the Vote group over refusal to produce evidence of '2000 Mules' claims
Arizona is also seeking proof of this organizations claims of voter fraud but has yet to receive the data:
Sourced: Letter from Chief Special Agent Reginald Grigsby, Arizona Attorney General.pdf Arizona's AG at this time was the republican Mark Brnovich.
Donald frequently cites the 2000 Mules movie as his proof for election fraud. Protect Democracy sues makers of election conspiracy film '2,000 Mules'; AG Ken Paxton, other Republicans push debunked “2000 Mules” film | The Texas Tribune; ‘2000 Mules’ Repackages Trump’s Election Lies - The New York Times; Even the geolocation maps in ‘2000 Mules’ are misleading - The Washington Post; Evidence Gaps in '2000 Mules' - FactCheck.org; Barr Laughs Off Election Fraud Allegations In ‘2000 Mules’ Documentary - YouTube; Two leaders of True the Vote jailed by federal judge for contempt of court | The Texas Tribune; True the Vote lawsuit: Konnech sues for defamation
{In many states, I would add that 1 person can drop off ballots for family members which is the case in Georgia. Mark Andrews did that in Georgia and his vehicle and license plate is shown in the movie. While his face is blurred in the movie, two of the defendants showed the unblurred face on other occasions. D'Souza narrates the scene: "What you are seeing is a crime. These are fraudulent votes". Mr Andrews is rightfully suing for defamation after being cleared of any wrongdoing by the Georgia Bureau of Investigation. Georgia Voter Mark Andrews Sues Dinesh D’Souza Over Fraud Allegations in ‘2,000 Mules’; Mark Andrews Complaint Filed in Federal District Court.pdf}
Rudy Giuliani concedes he made defamatory statements about Georgia election workers
McCarthy, in escalation, floats Biden impeachment inquiry - ABC News; Rep. McCarthy floats Biden 'impeachment inquiry' - YouTube; FD 1023_Senator Grassley.pdf If republicans pursue an impeachment inquiry, the identify of the informant and his alleged sources need to be subjected to public cross examination. Making allegations about just about anything is easy to do, while supporting them with hard evidence is what is required. I believe the House Republicans will vote to impeach Biden prior to the 2024 election. That is what Trump and his Trumpsters want, and the GOP is controlled by those persons. The effort will probably backfire in competitive congressional districts that have republican incumbents. It is red meat for republican politicians who have no serious threat for reelection other than from a more far right candidate in the republican primary.
I do not support Biden running for reelection. In the 2024 Presidential primary, I will likely vote in the republican primary for an alternative to Trump. Currently, my three alternatives in that primary are Senator Tim Scott (R-SC), Governor Asa Hutchinson (Arkansas) and Governor Doug Burgum (North Dakota) who is liked by George Will. Opinion | North Dakota Gov. Doug Burgum is a qualified presidential candidate - The Washington Post I have quit voting for republicans in the general election since I do view the now dominant ideology to be the antithesis of conservatism, which is reflected in my new title for this section.
Ben Shapiro Burns Barbies During Meltdown Over 'Woke' Movie
DeSantis Says Black People Benefited From Skills Learned in Slavery;
July 2023 is planet's hottest month on record, Copernicus reports | CNN;
Climate change: July set to be world's warmest month on record - BBC News
U.S. heat waves prompt surge in use of natural gas, a fossil fuel - The Washington Post Daily records for consumption of natural gas are breaking records.
+++
1. Bought 100 CU:CA at C$34.16 (C$1 commission):
Quote: Canadian Utilities Limited (CU-TO)
Canadian Utilities says that it is a global utility and infrastructure company which is true, but most of the revenues are generated by utility and infrastructure operations in Canada.
In the 2023 first quarter, Canadian electricity operations contributed C$38M of adjusted earnings. Canadian electricity transmission, natural gas distribution and natural gas transmission contributed C$157M in adjusted earnings. The total adjusted amount was C$217M. I am not impressed with the international operations.
Previous Round-Trip: Item # 1 Eliminated CU:CA - Sold 100 at C$38.6 (4/28/22 Post)(profit snapshot = C$433)-Item # 1. Bought 100 CU:CA at C$34.25 (5/8/21). The USD reportable tax profit will depend on the CAD/USD conversion rates when the stock was purchase and sold.
1 Year Chart-Intraday 7/24/23:
My hunch is that a bottom may end up being near the current price. The hunch is based on the price decline taking the stock price back down to reasonable P/E, the dividend growth history, current dividend yield, a 1 year chart that indicates that a bottom near C$34 may occur and a possible decline in intermediate and long term interest rates that make utility dividend yields more attractive.
The stock closed at C$32.9 yesterday, down C$.77, so the hunch is not playing out so far.
Dividend: Quarterly at C$.4486 per share (C$1.7944 annually), last raised from $.4442 effective for the 2023 first quarter payment.
Canadian Utilities | Dividends & Stock Splits
Dividend History: Good for a utility with annual dividend increases, though rate of growth may slow given the payout ratio. CU Dividend History 1972-2021.pdf
Yield at C$34.16 = 5.25%
Next Ex Dividend: 8/2/23
Earnings Report (Q/E 3/31/23): CU Q1 2023 Financial Information
This was the earnings report that I had when I bought the stock.
Adjusted earnings are lower than reported earnings.
E.P.S. C$1.01
Adjusted to C$.81
Adjustments discussed at page 22.
Earnings Report (Q/E 6/30/23): Released after my purchase on 7/27/23. Canadian Utilities Second Quarter Earnings
Adjusted earnings reported at C$100M or $.37 per share, down from $.51 in the 2022 second quarter.
CU-Q2-2023-Analyst-Call-Transcript.pdf The decline in earnings was attributed to "rebasing" in the Alberta distribution business. That resulted in a C$25M decline in earnings. The company expects pressure from the rebasing in the third quarter but sees potential seasonality benefits in the 4th quarter that may create year-over-year growth.
The overall reaction so far to this report is slightly negative.
Debt Ratings: Senior unsecured debt has ratings of A, BBB, and A- from DBRS, S&P and Fitch respectively. Fitch has a BBB+ rating on the preferred stock.
Canadian Utilities | Preferred Shares (low coupon, fixed rate) I have no interest in them.
2. Corporate Bonds: $6,000, Net of +$4,000 in principal amount
A. Sold 2 Piedmont L.P. 4.45% SU Maturing on 3/15/24 at 99.7:
Issuer: Operating entity for Piedmont Office Realty Trust Inc. Cl A (PDM) who guarantees the notes.
Prospectus (no make whole payment is required for an optional redemption on or after 12/15/23).
Proceeds at 99.6 ($1,992 + accrued interest of $32.14)
Profit Snapshot: +$19.12
%20+$19.12%203:15:24%20%20.png){kind=small}
I still own 2 bonds that I intend to hold until redeemed by the issuer or maturity.
PDM recently offered to buy up to all of the outstanding 2024 bonds at par value + accrued interest. Funding will be sourced from a recently completed $400M offering of 9.25% SU notes maturing on 7/20/28. Prospectus PDM announced that about 87% of the outstanding principal amount was tendered for purchase.
Rather than going to the trouble of tendering the bonds, I elected to sell 2 of the 4 that I own near par value. The notes are rated BBB/Baa2. It is possible that PDM will go ahead and redeem the remaining bonds that are not tendered after the offer expiration period and before the maturity date. It may not want to be paying interest on the newly issued 9.25% notes and the 4.45% note at the same time.
{In September 2021, PDM sold 300M of 2.75% SU notes maturing in 2032, Prospectus. In August 2020, PDM sold $300M in 3.15% SU notes maturing in 2030, Prospectus. Refinancing costs for Office REITs has risen substantially due in large part to the WFH trend and a potential glut of office space resulting in vacancies or substantial tenant concessions when existing leases expire}
At some point, I may elect to plow the proceeds received from the 4 bonds into purchasing 2 of the 9.25% SU notes. I will wait until the remaining 2 bonds are redeemed and then will consider buying only at less than par value. That bond is currently trading slightly over par value. Bond Page | FINRA.org After PDM redeems the remaining 2024 bonds, the 2028 SU will be the next one to mature.
I also own the common stock. Given the rise in interest costs, I was not surprised that PDM slashed its quarterly common stock dividend from $.21 to $.125, citing the higher interest costs. PDM Declared Third Quarter Dividend The annual savings from that cut will be $.35 per share. Applying that amount to the common stock outstanding as of 6/30/23 (123.692M), the annual savings would be about $43.05528M. The stock had already priced in a dividend slash IMO.
Last Earnings Report (Q/E 6/30/23) SEC Filed Press Release
"Core FFO was $0.45 per diluted share for the second quarter of 2023, as compared to $0.50 per diluted share for the second quarter of 2022. The $0.05 per diluted share decrease was almost exclusively attributable to a $9.6 million, or $0.08 per diluted share, increase in interest expense during the second quarter of 2023, partially offset by continued growth in Property Net Operating Income, as compared to the second quarter of 2022."
Revised Core 2024 FFO guidance to $1.74-$1.8 from $1.8 to $1.9.
B. Bought 2 First American Financial 4.6% SU Maturing on 11/15/24 at a Total Cost of 98.119 (IB Account):
A $1 per bond commission was charged but is not reflected in this snapshot.
The issuer is not a bank. FAF provides title insurance, closing, escrow and related services. It also sells property and casualty insurance policies and home warranty products.
SEC Filed Earnings Press Release for the Q/E 3/31/23
2022 Annual Report (Debt is discussed starting at page 74. The 2024 SU is the next SU bond to mature.
New Finra Page: Bond Page | FINRA.org
Credit Ratings: Baa2/BBB-
YTM at Total Cost of 98.119: 6.102%
Current Yield at TC = 4.688%
Last Bond Offering (July 2021): Prospectus for $650M 2.4% SU Maturing in 2031) Proceeds were used in part to pay off a $250M 4.3% SU that matured on 2/1/23.
I now own 4 bonds.
C. Bought 2 Ally Financial 5.125% SU Maturing on 9/30/24 at a Total Cost of 98.395:
%205.125%25%209:30:24%20.png)
Issuer: Ally Financial Inc. (ALLY)
ALLY Analyst Estimates | MarketWatch
ALLY SEC Filed Earnings Press Release for the Q/E 6/30/23
New Finra Page: Bond Page | FINRA.org
This bond is actively traded.
Credit Ratings: Baa3/BBB-
YTM at Total Cost: 6.5547%
Current Yield at TC = 5.21%
Maximum Position: 2 Bonds, will consider buying 2 more when this bond is redeemed.
D. Bought 2 Webster Financial 4.375% SU Maturing on 2/15/24 at a Total Cost of 99.114:
Issuer: Webster Financial Corp. (WBS)
The last earnings report was solid in my opinion. SEC Filed Earnings Press Release for the Q/E 6/30/23 As with other banks, NIM is under pressure.
New Finra Page: Bond Page | FINRA.org
This bond is currently actively traded.
Prospectus "The notes will be unsecured obligations of ours and will rank equally with all our existing and future unsecured and unsubordinated indebtedness". This word "unsubordinated" indicates that this is a senior unsecured bond. When issued, this was a 10 year note.
Credit Ratings: Baa1/BBB
YTM at Total Cost: 6.031%
Current Yield at TC: 4.414%
I now own 4 bonds. The other two bonds were bought at a 97.717 total cost. Item # 3.C. (5/20/23 Post)
I also have small ball positions in the common stock and WBS.PRG, an equity preferred stock that pays non-cumulative dividends. I own 10 WBS with an average cost per share at $25.54. I am not reinvesting the dividend.
3. Small Ball Buys:
A. Added 5 CCNEP at $21.84; 5 at $21.61- Schwab Account:
Quote: CNB Financial Corp. 7.125% Preferred Series A Stock
Issuer: CNB Financial Corp. (CCNE)
CCNE Analyst Estimates | MarketWatch
I eliminated my position in the common stock, see Item # 3.A. below, and I redirected the proceeds into the CCNE preferred stock. I discussed the last earnings report there.
Security: Bank Holding Company Equity Preferred Stock, senior only to common stock in the capital structure.
Par Value: $25
Coupon: 7.125%
Maturity: None, Potentially Perpetual
Issuer Optional Call: On or after 9/1/25 at par value + accrued and unpaid dividends.
Stopper Clause: Standard
Dividends: Paid quarterly, qualified and non-cumulative.
Once the preferred share dividend is legally eliminated under the Stopper Clause, non-cumulative means that there is no legal obligation to ever pay the dividends that were lawfully eliminated. They are just gone. The legal obligation to pay future dividends is usually triggered by the resumption of a cash common stock dividend but that only applies to the preferred dividends that would be owed after that resumption.
Annual Dividend Per Share: $1.78, rounded down.
Last Discussed: Item # 2.B. Restarted CCNEP - Bought 5 at $22.2; 5 at $20.75; 5 at $18.75; 5 at $18.4 (5/13/23 Post)
New Average Cost per share: $20.59 (30 shares)
Yield at $20.39: 8.65%, rounded up (.07125% coupon x. $25 par value = $1.78125 annual dividend per share ÷ $20.39 total cost per share = 8.651%)
Last Ex Dividend: 5/17/23
Last Sell Discussion: Item # 5.A. Eliminated CCNEP - Sold 10 at $26 (1/16/23 Post)
In the event the operating bank owned by a bank holding company is seized by the FDIC, the bank holding company common and equity preferred stocks will become worthless, though it may be able to sell the preferred shares for around $1 for awhile before they are cancelled in a BK filing. So the downside is close to zero.
B. Added to TRP - Bought 2 at $37.29; 1 at $36.45; 1 at $36.15; 1 at $33.6:
Quotes:
CAD: TC Energy Corp. (Canada: Toronto)
Canadian Dollar to US Dollar Exchange Rates Chart | Xe
Cost: 180.87
Last Discussed: Item # 3.G. Added 3 TRP at US$39.12 (7/15/23 Post); Item # 1.B. Added to TRP - Bought 3 at US$39.77 (7/1/23 Post) I discussed the 2023 first quarter earnings report in that post. SEC Filing
Prior AC per share: $43.3 (25 shares)
New AC per share: $42.11 (30 shares)
Dividend: Quarterly at C$.93 per share (C$3.72 annually)
Dividend History:
Last Ex Dividend: 6/29/23
It is not possible to calculate a dividend yield without knowing the CAD/USD exchange rate when the CAD dividend is converted into USDs. If I assumed a constant exchange at .75, the yield at US$42.11 would be about 6.63% (C$3.72 annual dividend x .75 CAD/USD exchange = US$2.79 ÷ Total Cost per share of $42.11 = 6.6255%). At US$33.6, my last purchase price, the yield using the same CAD/USD exchange rate would be 8.3%.
After my last discussion, TRP formed a joint venture for its Columbia Gas and Columbia Gulf assets. TRP sold a 40% interest in those assets for $5.2B (USD at $3.9B), retaining a 60% interest and continuing to manage those assets. The JV partners will jointly fund on a 60%/40% basis future maintenance, modernization and growth capital expenditures. Those expenditures are estimated at about US$1B per year over the next 3 years. TC Energy partners with Global Infrastructure Partners through $5.2 billion sale of a 40 per cent equity interest in Columbia Gas and Columbia Gulf
Some analysts believed the price was low and consequently reduced their ratings and/or price targets. The shares hit a new 52 week low in response. I have no opinion on the price adequacy.
On 7/24/23, Moody's also downgraded the senior unsecured debt rating for TransCanada Pipelines, a subsidiary, from Baa1 to Baa2. Moody's also downgraded TRP SU debt to Baa3 from Baa2. The outlook is "stable". The downgrades were based on Moody's opinion that the leverage metrics were unlikely to improve for several years. Moody's cited the February 2023 revised cost estimate for the Coastal Gaslink Project of C$14.5B, up from the previous estimate of C$11.2B and substantially higher than the original estimate of C$6.2B. Moody's reacted negatively to TRP turning off its dividend reinvestment option, refusing to raise capital through common share offerings and remaining committed to increase its dividend. Moody's viewed the JV formation as a credit positive, it was not viewed as sufficient to offset the balance sheet pressure resulting from future capital expenditures.
Coastal GasLink project. Coastal GasLink - Construction activity map
I am continuing to nibble based on the improvement in both dividend yield and valuation due to the price decline. Historical Prices & Data I am limiting my purchases to 1 or 2 shares with a maximum limit of 50 shares. Those limits are based on a risk assessment that involves primarily dividend safety and the growing complexity and uncertainties related to the corporate structure.
Spinoff of Liquid Pipelines Business: In addition to releasing its second quarter earnings, TRP announced that it intended to split into two companies. The liquid pipelines business will be separated and spun off to TRP shareholders in what is expected to be a tax free transaction. The spin off is expected to happen in the 2024 second half. TC Energy to unlock value by creating two premium energy infrastructure companies with intention to spin off Liquids Pipelines business I do not see any good reason to do this. The decline yesterday may be due to the Stock Jocks agreeing with that assessment.
Last Earnings Report (Q/E 6/30/23): This report was released on 7/27 after my purchases. The Stock Jocks reacted negatively to it. The stock fell $1.62 yesterday to close at $34.17.
All amounts are in CADs.
E.P.S. $.24
Comparable E.P.S. $.96
Consensus at $.97 per Fidelity
Adjustments to E.P.S.
I can see why Moody's downgraded the debt. The quarterly dividend is barely covered by the "comparable" E.P.S. number.
While TRP may be able to muddle through its capital spending and debt issues without cutting the dividend, there is nonetheless a danger that the dividend will have to be cut some or even slashed. I now see the stock searching for a new trading range, possibly between $30 to $40 from the prior $40 to $55. TC Energy Corporation (TRP) Interactive Stock Chart - Yahoo Finance
C. Started NNN - Bought 5 at $43.95; 2 at $43.61; 3 at $43; 2 at $42.56:
Cost: $521.09
7 shares were bought the day before the ex dividend date. The stock has fallen by more than the value of the dividend. I then added 5 shares on the ex dividend date.
Retail Properties | Our Portfolio | NNN REIT (35.3M square feet; 3,449 properties; 99.4% leased)
Average cost per share: $43.42 (12 shares)
Dividend: Quarterly at $.565 per share ($2.26 annually), last raised from $.55 effective for the 2023 third quarter payment. In 2013, the quarterly dividend was at $.395 per share.
NNN REIT, Inc. Common Stock (NNN) Dividend History | Nasdaq
Yield at AC per share: 5.2% When and if intermediate term interest rates significantly decline from present levels, this yield will then look more attractive than it does now.
Last Ex Dividend: 7/28/23 (owned 7 shares as of):
Last Earnings Report (Q/E 3/31/23): The third quarter report is scheduled for release on 8/1.
As a net lease REIT, AFFO and FFO will be close to one another.
FFO per share: $.8
AFFO per share: $.82
Adjustments from Net Income to AFFO: The primary deduction from FFO is non-cash revenue created by the straight line accounting convention. The primary add back is stock based compensation.
4. Small Ball Sells:
The following sales were small ball eliminations or pares in my Regional Bank Basket Strategy. The total realized gains so far in that basket strategy is $65,321,79.
Top 10 Realized Gains in this Basket:
Of those stocks, my largest current position is in NYCB, somewhere near 600 shares in taxable accounts plus a few more in ROTH IRA accounts. I have been discussing purchases recently only in my Vanguard account. NYCB reported much better than expected earnings for the second quarter. SEC Filed Earnings Press Release for the Q/E 6/30/23
In part, I am using the recent rally in this stock sector to eliminate 2 duplicate positions (NTB and FFIC).
The report released by ONB was fine but the price spiked to near the top of a five year high price where the stock has faltered in the past. That kind of chart will cause me to at least consider reducing or eliminating a position. I am not investing in stocks for the long term given my age, financial goals and current financial condition.
A. Eliminated CCNE - Sold 10 at $19.12:
Quote: CNB Financial Corp. (Pennsylvania)(CCNE)
Proceeds: $191.21
I am going to quit buying the common shares until I see sustained improvement in Y-O-Y NIM and E.P.S.
Instead of owning the common stock, I will own only the preferred stock, CCNEP, discussed in Item # 2.A above, which has a much higher yield than the common and is more senior in the capital structure. The yield advantage of the preferred over the common stock is over 4%.
Another consideration for throwing in the towel is the almost non-existent common share dividend growth history.
CCNE Analyst Estimates | MarketWatch
Investment Category: Regional Bank Basket Strategy
Last Discussed: Item # 2.D. Restarted CCNE - Bought 10 at $17.85 (4/22/23 Post)
Profit Snapshot: +$12.71
Dividend: Quarterly at $.175 per share ($.7 annually), last raised from $.17 effective for the 2021 4th quarter payment. CNB Financial Corporation (CCNE) Dividend History | Seeking Alpha
Yield at $19.12 = 3.66%
Dividend Growth: Almost non-existent. The quarterly rate was at $.165 in 2013.
Last Ex Dividend: 5/31/23 (owned as of)
Last Earnings Report (Q/E 6/30/23): SEC Filed Press Release
E.P.S. = $.61, down from $.85 in the 2022 second quarter
"The decrease in diluted earnings per share comparing the quarter ended June 30, 2023 to the quarter ended March 31, 2023 was primarily due to an increase in the Corporation's interest-bearing deposit costs as CNB raised targeted rates to sustain its core deposit base in legacy markets and to grow its funding base in expansion markets given the competitive deposit market as a result of continued Federal Open Market Committee ("Fed") rate increases. The decrease in diluted earnings per share comparing the quarter ended June 30, 2023 to the quarter ended June 30, 2022 was primarily due to the year-over-year increase in deposit costs, as well as the dilutive effect of the Corporation's common stock offering completed in September 2022, resulting in the issuance of 4,257,446 shares of common stock at $23.50 per share and net proceeds of $94.1 million after deducting the underwriting discount and customary offering expenses."
NIM: 3.62%, down from 3.74%
NPA Ratio: .43%
Charge Off Ratio: .07%
Coverage Ratio: 215.06%
Other Sell Discussions: Item # 1.J. Eliminated CCNE - Sold 10 at $23.63 (3/6/21 Post)(profit snapshot = $92.8); Item # 2.B Pared CCNE-Sold 5 at $20.61 Fidelity taxable; Eliminated CCNE Schwab Taxable -Sold 6 at $21.24 (12/25/2020Post)(profit snapshots= $26.79 and $31.22 = $58.01); Item # 3.A. Eliminated Remaining CCNE-Sold 50 at $23.76 (2/17/2017 Post)(profit snapshot = $618.1); Item # 1 Sold 50 CCNE at $18.74 and Another 50 Share Lot-Update For Regional Bank Basket Strategy As Of 7/26/16 - South Gent | Seeking Alpha (profit snapshots $56.07 and $40.99)
CCNE Realized Gains to Date: $1,190.91 (at #15 in the basket)
B. Eliminated Duplicate Position in NTB - Sold 14 at $31.87:
I am keeping the 19 shares owned in my Fidelity account that have a $24.15 average cost per share.
NTB Analyst Estimates | MarketWatch
Investor Relations: Butterfield Group
Profit Snapshot: $96.14
Last Discussed: Item # 3.J. Bought 1 NTB at $23.4 - Fidelity Account (5/13/23 Post) I discussed the first quarter report in that post. SEC Filed Press Release The second quarter report is scheduled for release on 7/31.
Dividend: Quarterly at $.44 per share ($1.76 annually)
The Bank of N.T. Butterfield & Son Limited (NTB) Dividend History | Seeking Alpha
I am not expecting a dividend increase.
Last Ex Dividend: 5/5/23
Other Sell Discussions: Item # 3.E. Pared NTB-Sold Highest Cost 10 Shares in Fidelity Account at $32.5 (12/5/2020 Post); Item # 1.J. Pared NTB-Sold 2 at $35 (2/6/21 Post)
NTB Realized Gains to Date: $214.98
My interest in this stock is confined to the dividend yield at my total cost per share.
C. Eliminated Duplicate Position in FFIC - Sold 10+ shares at $14.05:
I am keeping a 13+ share position in my Fidelity account that has an average cost basis of $10.24:
 |
| Price as of 7/26 |
That is currently my entire position in FFIC.
As reflected in this snapshot, the stock rose 16.73% on 7/26 in response to the second quarter earnings report, which I discuss below. The dividend yield at $10.24 is 8.59%. I will add to that position only when the purchase reduces my average cost per share. I am not reinvesting the dividend.
Profit Snapshot: +$30.7
Item # 1.E. Pared FFIC in Schwab Account- Sold 5 at $24.21 (4/9/21 Post)(profit snapshot = $63.93).
Item # 1.H. Eliminated FFIC in Vanguard Taxable Account -Sold 10 at $18.85 (2/6/2021 Post)(profit snapshot = $82.8)
Item # 3.H. Pared FFIC in Fidelity Taxable Account-Sold 10 at $14.05; 5 at $16-highest cost lots (12/19/2020 Post)(profit snapshot = $39.96)
The largest gain was on 100 shares sold in 2011:
 |
| +$200.7 |
Item # 4 Sold 50 FFIC at $13.53 (10/31/2011 Post); Item # 2 Sold 50 FFIC at $14.51 (5/2/11 Post)
Snapshot of another gain that was not discussed:
 |
| 2022 5 Shares + $58.91 RI |
FFIC Realized Gains to Date: $573.6
A. Bought 5 Treasury Bills at 7/24/23 Auction:
%20.png) |
| Fidelity Account |
%2010:26:23.png){kind=small} |
| Schwab Account |
Matures on 10/26/23
91 Day Bill
Interest: $66.6
Investment Rate: 5.43%
B. Bought 2 Treasury Bills at the 7/26/23 Auction- Fidelity Account:
Matures on 11/28/23
119 Day Bill
Interest: $35.04
Investment Rate: 5.484%
6. CDs - FDIC Insured:
A. Bought 1 UBS Bank 5.05% CD Maturing on 8/4/2025:
Interest paid monthly.
When I purchased this CD, the 3 year treasury, which pays interest semi-annually, was trading at a 4.488% yield.
I am gingerly adding to my 2025 maturities. Currently, I have only $6K maturing in August 2025.
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 sale 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 my family members.
You've found a bunch of good CDs... out into 2024, 25.
ReplyDeleteLand: The general rule that I am following for CD purchases is that the yield has to be higher than the yield for a comparable maturity treasury. That is a relevant criteria for me since I live in Tennessee that has no individual state income taxes.
DeleteMany of the short term, non-callable CDs (3 months to 1 Year) being offered now do not have a yield advantage. Even when there is a yield advantage, that may be lost and then some when the investor has to pay a state income tax on the CD interest income, while treasury interest payments can not be taxed by a state.
If a short term CD has a higher yield than the comparable treasury, that may be due to a call feature that allows the issuer to redeem at par prior to maturity, usually on a monthly basis, after a brief period when no call is allowed.
An example is a JPM CD that I bought that has a 5.55% coupon and a 9/9/24 maturity date (11 month CD) but the optional call right starts on 2/8/24. So only 6 months of call protection.
As I mentioned in an earlier comment, my main concern now is that short term interest rates will drop materially next year, which is the current Bond Ghoul prediction that I highlighted in this post, and that would be occurring when I will be receiving a substantial amount in proceeds from maturing corporate bonds, treasuries and CDs.
So my main investment issue now is whether I am willing to accept less yield for new purchases by buying longer term fixed coupon securities which is the case due to the inverted yield curve.
I am having a mental block in doing that, though I feel that I will manage to overcome that block to some decree because I do not want to reinvest proceeds from 5%+ yields into 2%-3% in late 2024 or early 2025. I am now contemplating whether I will buy the 3 year note at the 8/2 auction. Using some proceeds to participate in the 2 and 5 year auctions is also on the table for internal discussion between my left and right brain.
Even though the apex of my taxable fixed coupon securities is 2024, I am still buying more 2024 maturities than even 2025 and most of the 2025 purchases that I have made mature in the first half.
Land: $25K is my maximum exposure to a single issuers bonds other than the U.S. government. Diversity among issuers and limitations on exposure are two ways that I attempt to manage risk.
DeleteI have only 1 issuer where I have reached that non-treasury limit which is the AAA rated Williamson County Tax Free GOs. This is the county in Tennessee where I live. Williamson County is one of 3 AAA rated government issuers in this county. The other 2 are my city Brentwood and the other is Franklin. I doubt there is another county where there are AAA triple rated municipal governments. Tennessee also has a AAA.
There are other foreign countries that issue bonds priced in USDs. Most of them are in emerging markets which I will not touch, judging the risk as outweighing the modest yield advantage.
I have run into a few USD priced bonds issued by Canada, Canadian Provinces, Poland, Italy and Hungary but I see no reason to buy them since the yields are either lower or about the same as U.S. government bonds.
While I have not research the issue, I believe that interest paid by Israel would be taxable in a state that has an income tax. So say an investor has to pay an 8% state tax on 5.18%. The state tax alone reduces the yield to 4.77%. The 3 year treasury yield closed last Friday at a 4.52%. The credit ratings for the Israeli bonds are currently AA- and A1 by Moody's.
https://www.gov.il/en/departments/general/israels-credit-rating
I meant to say in the previous comment that Williamson County, TN. may be the only country in the U.S. were there are three AAA rated municipal governments. My sentence phrasing sometimes results from a brain malfunction.
DeleteAnother typical brain malfunction involves failing to keep power charging chords in places where I know to find them. I am not sure that I can blame that one on my aged brain. Yes, when I put one somewhere, I know where it is for at least 10 minutes but have no idea after more time passes. I was looking for a power charger today for a power tool and managed to find about 10 other cords that charged unknown devices that were scattered in drawers and closets just about everywhere in my house.
Thanks for the CD vs bond asssessment!! I'll have to plug in our numbers (Dad,mine) and see. New rates on Tuesday is a factor too.
DeleteChuckling. The new junk draw. Along side the bowl of twist ties is a knot of cords to who knows what. Maybe a plug in AI tool will come along that will fix that and make the stock market soar. (said jokingly).
DeleteLand: The most relevant yield number is the one adjusted for taxes (state and federal) and inflation. Those adjustments are depressing but are less so now than a year ago when CPI was close to a 9% annual rate and the FED had only started to raise rates.
DeleteTreasury bill yields do not need an adjustment for states taxes and are currently providing a real rate of return before federal taxes. For most investors, the real yield would still be positive after reducing the nominal yield by the marginal tax rate.
Other consideration include credit quality when selecting one alternative vs. another. For now, I view an FDIC insured CD as having the same credit quality as a U.S. treasury.
One fixed coupon security may be preferable after considering all the variables (credit quality/after tax yields) but that does not mean that any are that desirable when the investor has a long term risk of outliving their savings. One risk that needs to be considered is what I call "situational risks", which is simply how fast does a nest egg need to grow to meet future financial payments and obligations.
I made a significant allocation to high quality Tennessee Municipal bonds in 2017 when their nominal yields were higher than comparable maturity treasury bonds. Adjusting nominal yields by federal taxes made the tax free municipal bonds even more attractive compared to treasuries but that was when longer term yields were low.
Thanks for all the how to's on assessment!!
DeleteFor that situational risk, that's where if you don't have huge coffers, the idea is to keep money needed in later years in the market for the better gain. About 5 years income supplement to SSDI in bond ladder so you don't have to sell during a down period.
Florida insurance is eye popping. I'm in a townhouse at around $800/yr.
ReplyDelete"The boss"
ReplyDeleteDe oliveira says it all with that.
A huge amount of courage by Taveras to testify against both of them. Trump will try to destroy him.
One weakness of a socio is they always think it's someone else's fault. They think they can't get caught. They're too smart. It's helpful to those trying to take them down!
Land: The timing is extremely relevant. A draft GJ subpoena for the video footage was served on Trump's attorneys on 6/22/22. Trump set in motion the effort to delete the video footage on the next day. He knew that documents had been removed from the storage area and that would have been caught on camera.
DeleteThe question that I have is whether the DOJ has another witness other than Taveras who has not been charged.
The case for obstruction IMO is nearly airtight with the evidence described in the indictment, but it would be helpful to have one other person who can link Trump directly.
De Oliveira could provide testimony after accepting a plea deal which is unlikely IMO for as long as he has an attorney whose fees are paid by the "Save Trump PAC". His best option is to hire a lawyer that is not under Donald's control and work out a plea deal that includes community service rather than prison time.
https://www.cnn.com/2023/07/28/politics/trump-maralago-indictment-carlos-de-oliveira/index.html
If Trump is not convicted of multiple felonies in the documents case, the most likely cause will be jury nullification, where one or more Trumpster jurors refuse to convict no matter how much evidence is produced proving guilt beyond a reasonable doubt.
https://www.theatlantic.com/ideas/archive/2023/06/three-biggest-obstacles-convicting-trump/674366/
One of those obstacles listed in that article is jury nullification.
The current estimate is that Trump's PAC has paid about $40M in legal fees during the first six months of 2023. The exact amount will be disclosed tomorrow.
Thanks for the details.
DeleteIt's finally looking like Trump may get publicly confronted on several of his corruptions in courts. That by itself will matter. Takes one jury without a 'nullifier' to get to conviction. Maybe can happen?
Maddow went through the GOP coffers last night that are near empty. She quoted a GOP oldtimer who said it's from pure incompetence and 'nuts' of the current round of GOP who have no interest in 'basics' of operational methods.
LAND: Maddow may have been referring to Trump's "Save America PAC" that filed with the FEC yesterday. That PAC started the year with over $100M and was down to $3.6M in cash as of 6/30/23. That is the PAC that is being used to pay Trump's numerous legal bills and the bills of those whose silence and non-cooperation are apparently worth the price, particularly since it is not Trump's money that is being used but mostly small dollar donations from mom and pop Trumpsters. Trump is a True Believer in the W.C. Fields advice to "Never Give a Sucker an Even Break".
Deletehttps://www.imdb.com/title/tt0033945/
Jury nullification is not common but do occur in cases where a juror simply does not want to vote guilty even though the juror believes that the prosecution made its case. Trump is certainly the kind of defendant who could benefit from a juror nullification. More frequently, it may occur in cases where the juror simply does not view the charged crime as a crime (e.g. small amount of marijuana for personal use charged as a felony) or the defendant is worthy of sympathy/empathy in a non-personal injury crime involving property.
We finally have Trump indicted and facing criminal cases.
DeleteThere was a long wait and so much anticipation and hope. I realized last night, somehow the moment came without a sense of excitement and relief. At least not in my world.
The key for prosecutors in this case will be screening the jury. Have to find normal seeming people with .... well you know. That'll be more important than presenting the case. Other worry is which judge they'll get, that will let Trump play games.
I wish Biden hadn't promised a woman VP. He was aiming for Amy Klobachar. She has the experience to have run this time. Harris simply doesn't. I'm not sure she ever will; she seems not to have the politiking skill. But if Amy hadn't been ruled out with the BLMs concerns, he could have picked a male & there were a few with more experience & could have run this time.
Biden's not holding back the far left & catering too them too much. Plus his age. But overall he's been decent and way better than where we were headed!
___
I believ Maddow was referring to the GOP coffers directly in each state being unfilled due to poor managment. She then also spent time on Trump's "Pay my criminal expenses" PAC.
An article published in the WSJ today highlights one issue that I have with increasing my stock allocation now.
ReplyDeleteSubscription publication:
https://www.wsj.com/articles/the-benefit-of-owning-stocks-over-bonds-keeps-shrinking-20528203?mod=hp_lead_pos1
"The gap between the earnings yield of the S&P 500 and the yield on the 10-year U.S. government bond dropped to around 1.1 percentage point last week, its narrowest since 2002" The gap is called the equity risk premium.
The earnings yield for stocks is calculated by dividing the expected earnings over the next 12 months by the stock price.
Note that the ten year treasury closed today with a 3.97% yield. The yields on treasury bills are higher with the highest yield along the treasury maturity spectrum being the 2 month to 6 month bills ranging from 5.54% to 5.56%.Comparing the stock earnings yield with those rates produces a negative number. The question is for how much longer will those rates be available.
Really true for baby boomer retirees. Though many will keep some funds in the market for longer term gains.
DeleteI've bypassed a few buys because divs were low compared to savings.
Israel bonds new rates today are higher still. I think it's time for buying whatever longer bonds work for a portfolio.
I'm debating how much into bonds vs holding and waiting to get into the market for the apparent bull. (Bull in spite of recession indicators.) Maybe worth paying the ibond penality to buy other bonds. Total $25k so not a critical decision.
Land: Situational risks can arise long before retirement (e.g. college education expense for children, loss of employment, mortgage payments and other non-discretionary expenses, etc.).
DeleteSince I am retired, I am primarily referring to the situational risk that arises after retirement.
Fidelity currently estimates that a 65 year old retiring today can expect to spend $157,500 in healthcare and medical expenses, which excludes long term care expenses. That is just one of many major expenses.
Another potential problem arises from inflation. I recall a number of bad luck stories of people who retired in the 1960s, thinking they had done a good job saving money and then having no choice but to go too quickly through the savings due to the problematic inflation period that lasted over a decade. Some advisors recommend using TIPs as one way to deal with that issue.
When life expectancy is not that long and the person is retired, relying on stocks to generate inflation adjusted growth in capital can run into the situational risk that a long term bear market could start soon after retirement, decimating the size of the next egg where the retiree has no choice but to sell and withdraw at lower prices to pay expenses.
I am not inclined to redeem any IBonds. I have some that can be redeemed now without paying a penalty but I do not view redeeming and investing in newly issued ones with a higher fixed rate as worth the trouble.
I have discussed here that a five year TIP purchase is an alternative now to the IBond, provided the investors spends some time learning about them. The reason is that the real yield is more than double the current IBond real rate (real rate: the yield above the inflation rate yield component). Yesterday the five year TIP close with a real yield of 1.91% with the Ibond bought now at .9%.
That problem of a crash while retiring .... is why I'll try to keep a cash/bond ladder set up in the years before so it won't be a forced last minute withdrawal.
DeleteI wasn't going to buy new ibonds. I'm done with them. Because my current ibonds are starting to have lower rates than a savings account, was thinking of cashing out and getting TIPs or other bonds.
So the AI hype is getting a little reality blown in....
ReplyDelete"AI hype boomed to start 2023. Earnings reveal gains won't appear 'overnight"
https://finance.yahoo.com/news/ai-hype-boomed-to-start-2023-earnings-reveal-gains-wont-appear-overnight-170501800.html?guccounter=1&guce_referrer=aHR0cHM6Ly9maW52aXouY29tLw&guce_referrer_sig=AQAAAGic5u3qfV-49fMlKkYxFbQyo-hX6mNk-m48Of0XjD0gCN-x7w7eO8NWnhG5A3EgfRY0HqOIiRpHjvmnIuhn0c0oM3-26pUdieqUBnpOwj6-ulGxnF_1-Ij2zjj4AmULe4MvMGOl6dl94WgjzDHUKIdwvaqOsQDrontkIQ9C34Ke
Intermediate and longer term interest rates are rising today.
ReplyDeleteThe ten year treasury is currently up about 8 basis points to 4.04%.
The rise today has nothing to do with inflation concerns but to the Treasury's announcement that it will need to sell over $1 trillion in debt staring in July through September. That is an increase from $733B estimate that the treasury made in early May.
The U.S. will have the pedal to metal until there is a failed treasury auction, where the FED has no choice but to create money to buy what could not be sold and then it will get much worse.
Another dynamic that I don't understand. But sounds like a concern.
DeleteLand: To absorb the additional supply, investors want slightly higher rates. This is not an inflation issue but one of supply/demand and a creeping uneasiness about future treasury debt offerings causing rates to rise.
DeleteAs of 7/31/23, total U.S. debt was at $32.608+ trillion.
https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny
The debt was less than $1 trillion in 1981.
Your thoughts on the impact of Fitch downgrade of U.S. Treasuries please?
ReplyDeleteI agree with this sentence in the Fitch press release:
Delete"The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions."
https://www.fitchratings.com/research/sovereigns/fitch-downgrades-united-states-long-term-ratings-to-aa-from-aaa-outlook-stable-01-08-2023
The downgrade was from AAA to AA+. I did not view the U.S. as a AAA rated borrower before this Fitch downgrade.
S&P reduced its rating to AA+ from AAA in 2011. That downgrade was in response to the GOP coming within a day or two of causing a U.S. default. The governance issue cited by Fitch has not improved of course since 2011 and the debt levels have spiraled higher.
AA+ is still a very high rating. I am not currently concerned about the U.S. servicing its debt obligations provided the debt limit is increased as needed. Hard to predict when that will change.
Longer term, I anticipate that there will be a series of failed treasury auctions which I have discussed frequently in this blog.
The cost of servicing the debt will have risen prior to those events, probably to well over $1T per year IMO, and the debt levels would then be far higher than now. Hard to say whether the debt would then be $40T, 50T or higher.
The willingness of non-FED buyers to absorb that debt will decline to a point where all of the debt that needs to be sold can not be sold. The FED will then have to step in and monetize the debt by creating money to buy the unsold portion.
When will that happen? Impossible to say with any certainty. Maybe as soon as 10 to 20 years. The fact that U.S. government debt is priced in USDs helps as does real GDP growth in the 2% to 3% range.
The increases in debt servicing costs and the interest rates paid on the debt, the rapid increase in overall debt levels, and the governance issue likely to remain in effect and probably becoming worse, make the end result inevitable IMO.
When that time comes how does it effect things? Market down on economic worries? Rates up to entice buyers?
DeleteLand: The U.S. government has benefited by a prolonged period of low refinancing rates that have been driven artificially low by extremely abnormal FRB monetary policies.
DeleteThe FED has the power to drive interest rates for prolonged periods below the inflation rate which it is not doing at the moment, but has been doing for about 15 years and periodically before 2008. The same power was revealed in FED monetary policies after WWII.
If the FED decides to allow the market to set U.S. interest rates, rather than to manipulate them below the inflation rate, the long term annual average financing costs will substantially increase as a function of both higher refinancing costs and new debt.
So there will come a time when debt supply and the overall fiscal condition of the U.S. government will drive treasury rates higher even when inflation is low, and irrespective of CPI or any FED willingness to lower interest rates through its monetary policies. The FED will lose control over rates. The only recourse would be for the FED to monetize the debt by creating money to buy debt that can not otherwise be sold.
As to what happens when treasury auctions fail, I would anticipate the fairly rapid onset of a depression and the USD losing its status as the world's reserve currency. It may be possible for interest rates to rise given the predicted instability of the U.S. government's finances when that happens.
The situation could be avoided, even at this late date, but I view that as highly unlikely, bordering on impossible without a brain wash and reset of partisans from both parties. The U.S. has a dysfunctional government where neither party is willing to come to any sensible fiscal compromise that combines major spending reductions, including in those viewed as important to both republicans and democrats, an increase in federal tax rates for the wealthy and the elimination of many tax provisions where the benefit is limited but the cost is significant.
The general approach has been and is now to only meaningfully reduce spending on programs favored by the other political party. And, there is nothing in the past 20 years that suggest that the fiscal irresponsibility of both parties will change in time to avoid the failed treasury auction scenario.
From the New Yorker
ReplyDelete"E-mail Asks Supporters to Serve Prison Time for Him
'This offer is doing even better than the Trump N.F.T.s,' a campaign spokesman said.
By Andy Borowitz"
Land: For those so inclined and millions are, Trump is now offering a "Limited Edition" T Shirt for as low as $47 emblazoned "I Stand with Trump" and the date of the last indictment.
DeleteLimited Edition, lol. 2Million? $47 for a $5 dollar tee... okay. Hope he spells Trump right!
DeleteOh, being cheap on print. He should include a list of EVERY indictment. And all the lost voter fraud court dates.
A handy way for us to keep all of it straight.
Intermediate and longer term treasury yields continue to trend higher today.
ReplyDeleteThe ten year treasury yield is currently trading up 9.06 basis points to 4.178%.
https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx&mod=home-page
The iShares 20+ Year Treasury Bond ETF (TLT) is currently trading at $94.98, down $2.11 or 2.19%. Marketwatch has the yield at 3.28%.
https://www.marketwatch.com/investing/fund/tlt?mod=search_symbol
The upward trend in yields is causing a downdraft in the utility and REIT sectors.
Vanguard Real Estate ETF (VNQ)
$83.21 -$1.42
Last Updated: Aug 3, 2023 at 12:45 p.m. EDT
https://www.marketwatch.com/investing/fund/vnq?mod=search_symbol
To expand some on my comment published yesterday about the U.S. government's long term fiscal health, I would add that the odds of a default caused by failing to increase the debt ceiling will meaningfully rise as the fiscal situation deteriorates which will also exacerbate the growing political dysfunction.
The CBO estimates that interest on the national debt will be $745B in the 2024 fiscal year ending in September 2024. The actual number for fiscal 2022 was $475B and $352B in the 2021 F/Y. The CBO estimates that the interest payments in F/Y 2033 will be $1.4T but that is just a wild guess given the variables and time period. It could be a lot worse.
i think I heard on bloomberg radio that the higher current rates helps the debt since it holds at lower rates.
DeleteThen there's the future with what's being offered now.
Glad I don't own TLT. I saw a few charts earlier on my cell that snp is significantly over valued.... but mid caps are not. If I start buying I'll aim for small/mid caps.
Land: In previous comments, I noted that the yields of intermediate and longer term corporate, municipal and treasury bond ETFs had such low yields that only a minor uptick in interest rates would devour an entire year of dividend payments.
DeleteThe rule of thumb for bond funds is that for "every 1% increase or decrease in interest rates, a bond's price will change approximately 1% in the opposite direction for every year of duration. For example, if a bond has a duration of 5 years, and interest rates increase by 1%, the bond's price will decline by approximately 5%."
https://www.blackrock.com/fp/documents/understanding_duration.pdf
TLT, which has a duration of 17.7 years, will decline approximately 17.7% for each 1% rise in rates.
A buyer of TLT on the first trading day of 2022 may never produce a positive total return before taxes and inflation. Unlike buying a bond with a maturity date, a bond fund does not promise to pay par value.
Eventually, a TLT or other bond ETF purchase might work provided the timing is close to spot on, meaning a purchase just prior to an extended period when interest rates are declining.
TLT has as of yesterday's close an average annual 5 year return of -2.42%. The return with the negligible dividends reinvested last year was -31.24%.
Mativ Holdings Inc. (MATV)
ReplyDelete$17.99 +$ 0.17 +0.94%
Last Updated: Aug 3, 2023 at 2:43 p.m. EDT
https://www.marketwatch.com/investing/stock/matv?mod=search_symbol
I just noticed that MATV popped on 8/1/23, rising $2.17 to close at $17.91, or 13.78% gain on heavy volume for this stock.
Eventually I notice developments, though it may take a few days now.
In my last discussions of this stock, I characterized the recent earnings reports as so disappointing that a dividend cut was prudent if the trend continued for 1 or 2 more quarters. The last quarterly dividend was $.4 per share. I own just 25+ shares with an AC per share of $16.67, so I am now in profit territory.
The stock rise was triggered by what the Stock Jocks currently view as a favorable price for an asset sale but this will also result in a dividend cut which is where the company was headed IMO anyway.
"Mativ Announces Proposed Sale of Engineered Papers Business for $620 Million"
https://www.businesswire.com/news/home/20230731213416/en/
"Company intends to use net sale proceeds of approximately $575 million to reduce debt" which amount represents about 35% of outstanding debt.
"The Company intends to adjust the annualized dividend of $1.60 per share to $0.40 per share, effective for the September 2023 dividend payment; this represents a total annual dividend payment reduction from $88 million to $22 million"
Using my AC per share, that cut will reduce my dividend yield from 9.6% to 2.4%. While I view the action as prudent, it is also unsatisfactory to me given my financial objectives and my opinion that the actions were caused by recent poor operating results.
I have now eliminated my position.
"$1.60 per share to $0.40 " That's a huge cut. Shows that the market doesn't notice everything at the same time when it rallies on the sale with this in the info.
DeletePrior to my MATV elimination yesterday at $17.98, I had eliminated my positions twice earlier at $27.97 and $26.05.
DeleteIn my last discussion, I made the following comment:
"As previously discussed, I am expecting the dividend to be slashed, unless there is an immediate and significant increase in earnings. The last earnings reports have been disappointing. For the 2023 first quarter, non-GAAP E.P.S. was reported at $.25. A quarterly dividend of $.40 per share would be justified and prudent IMO with quarterly non-GAAP E.P.S. near $.80. A cut to $.10 would be prudent with quarterly E.P.S. running near $.25."
July 8, 2023 Post
Item # 1.H. Added 3 MATV at $14.14
https://tennesseeindependent.blogspot.com/2023/07/bac-cfgprd-dea-goodn-icmb-jef-matv-pch.html
2nd Q. earnings are scheduled for release on 8/9 which may further indicate that the $.40 per share quarterly dividend needed to be slashed. And selling a major business for MATV and using the proceeds to pay down debt is generally not likely to solve the earnings problem and may exacerbate it at least in the short term.
I frequently buy stocks in companies who are experiencing problems. The question, which has no clear or certain answer, is whether the slashed stock price at the point of entry more than compensates for the known earnings problems that may only be temporary.
Our ex-president pleads, "not guilty. And I have an excuse." Polls show 50% of GOP won't vote for him if he's convicted of a felony. May that all come to be. I don't know if it'll help the fiscal issues. It'll help a lot of people's need for high blood pressure meds and prozac.
ReplyDeleteLand: I doubt that Trump will be tried before the election. If one trial occurs and a guilty verdict is returned, the appeal will not be decided before the election.
DeleteAnd, if he wins, he will order the DOJ to dismiss all federal charges or he will pardon himself. If he pursues either of those paths, the result will be a third impeachment provided the Democrats control the House.
The most recent poll that I reviewed show that 22% of republicans believe that he has committed crimes but would vote for him anyway. I would agree with Jim Jordan (R-OH) that the last indictment will harden republican support for Trump.
https://thehill.com/homenews/house/4136780-jim-jordan-says-indictment-hardens-expands-support-for-trump/
If anyone expects republicans to suddenly recognize that Donald is the Dark Force who will destroy those institutions that have contributed to America's success, then they are deluding themselves IMO.
I think the number was 40%, not 50%. I heard it not read, so I can't check and I don't remember anymore.
DeleteOh right, appeals. But if convicted waiting for appeal may not matter to those polled? Then again it was one vague poll.
Land: There may be about 45% to 50% of republicans who would prefer another candidate to Trump but they are so split and divided that no candidate is polling over 20% and Trump is currently at 53.1% using the average of all polls.
Deletehttps://www.realclearpolitics.com/epolls/2024/president/us/2024_republican_presidential_nomination-7548.html
If those republicans have elected to speed pass all of the obvious off ramps so far, I doubt that anything will cause them to change their minds about Donald, including a felony conviction. Trump is obviously evil and 75M+ Americans will vote for him again. He has a decent shot at beating Biden in 2024, and is currently running neck-to-neck with him the polls.
I doubt that an appeal of a Trump felony conviction could be finally decided within a year. If there is a criminal trial finishing before the election, and Donald is acquitted, that will IMO make it more likely that he would beat Biden.
Acquittal would be a disaster.
DeleteBloomberg repeated the poll yesterday. Half wouldn't vote for a convict - according to their poll answers. Those don't always match real life!
Land: I think that you may be referring to a Reuters/Ipsos poll, where only 45% of republicans claimed that they would not vote for Trump if he is convicted. 35% said they would. Note that the same poll has Trump leading DeSantis, his nearest challenger, by 34% after all of the indictments, the sex assault jury verdict, his inability to tell the truth, his assault on democracy, and all of his unsavory conduct over his entire adult life.
Deletehttps://www.ipsos.com/en-us/reutersipsos-survey-despite-indictments-trump-leads-primary-field-desantis-loses-support
No trial is likely to start until almost all of the primaries are over. So the indictments by themselves will not cause Trump to lose the republican nomination. A conviction that is being appealed on election day may cause a small percentage of republicans to stay at home but the rest will vote for Trump when Biden is the alternative, notwithstanding Trump's felony conviction.
A conviction will result in Trump losing the popular vote by over 15M IMO but he can still win in the electoral college vote with narrow victories in a few states, a feat he almost accomplished in 2020.
The market didn't want to go into the weekend green.
ReplyDeleteLooking at news, there's lots of reasons given. I can't tell what really is.
...Jobs slowing should be good for inflation and reduce rate hike potential. But another article lists Fed eyeing another rate hike...
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News is talking about new docs case charges. Putting his charges on a tee shirt wouldn't fit unless the shirt was big enough to fit him and his super fit physique (how did the doctor word it? - that fiasco alone should have ended his career.)
Land: There was a lot to digest in terms of economic news.
DeleteThe most important negative news was the Fitch downgrade of U.S. debt, with a lot of people saying it was justified.
The monthly jobs reports are starting to have downward revisions in the prior 2 months. This is something that I expect to see in the early stages of a job creation slowdown. The unemployment rate, number of jobs created with the downward revisions and wage growth are still inconsistent with a recession about to start.
The average work week in July declined by .1 hour which is a lot of money when spread over the entire workforce.
Some of the tech earnings were disappointing this week.
A major shipping company revised down its expectation for container shipments deeper into negative territory.
The increase in bond and short term treasury yields make stocks less attractive. As I will discuss in tomorrow's post, I bought $20,000 in treasury bills and $8,000 in short term corporate bonds this week, both in principal amounts, and I reduced my stock allocation by almost $3K.
Hum impressive move:
ReplyDeletehttp://www.marketwatch.com/news/story/us-cellulars-stock-rockets-91/story.aspx?guid={20C06575-04D4-B545-7242-015A70F0DD23}&siteid=rss
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2023/08/bwbbp-cnobp-cmcsa-dcom-dea-fcld-ffnw.html