Economy:
The BLS reported that the economy added 200K new jobs last month. The job gain for November was cut by 36K, while the number for December was revised higher by 12K to 160K. Employment Situation Summary
The U-6 number increased to 8.2% from 8.1% in December. Table A-15. Alternative measures of labor underutilization
Worker pay increased by 2.9% for the 12 month period ending in January. It will be important to watch how this gain holds up in the coming months. The labor market is tight and wage gains are to be expected as employers have to ante up to keep existing employees from bolting to other jobs.
Big pay gains in January favor high-income workers over minimum-wage workers - MarketWatch
The work week declined .02 hours in January to 34.2, partly due to the weather.
Job Creation Numbers By Month: Compare 1st Year of Trump's Administration with Last 5 Years Under Obama:
2012 2.151M
2013 2.301M
2014 3.005M
2015 2.712M
2016 2.344M
2017 2.173M
Sourced: Bureau of Labor Statistics Data
Yes, I know from listening to Fox "News" and to Trump that Donald inherited one big mess; and job growth has surged during his first year in office compared to Obama's last five years.
Among those of us who remain grounded in reality rather than reality creations, a rapidly diminishing part of the population, U.S. job growth is slowing down. And, without question, job growth in Trump's first year was substantially below the recent 2014 and 2015 peak years.
++++++++
Market and Market Commentary:
J P Morgan Guide To The Markets as of 12/31/17 (contains an abundance of useful information) If that link does not work properly, the latest JPM report can be downloaded here: Guide to the Markets - J.P. Morgan Asset Management
The DJIA declined 665.76 points last Friday. Perhaps, we can take some solace in that the decline was not 666. For those stock market historicans, the bull market started after the SPX hit an intra-day low of 666 in March 2009. In This Devil of a Market, Could 666 Be the Bottom? | Seeking Alpha (published 3/9/2009).
Junk-bond market getting riled up over potential crash into a ‘maturity wall’ - MarketWatch (Moody's estimates that $104B in junk bonds will mature in 2019, up from about $36B this year)
A junk bond ETF has only a 5.31% yield according to Marketwatch: SPDR Bloomberg Barclays High Yield Bond ETF (JNK)
Bank of America: Sell signal triggered for stocks - MarketWatch (too much greed and not enough fear)
Bond fund manager who called dollar’s slide says ‘it’s not too late to move out of U.S. bonds’-MarketWatch
It is certainly possible that bonds have entered into a long term secular bear market already. However, that conclusion can not be drawn with any certainty yet since there have been many false starts.
If the bond market has started one, meaning a long term secular bear market lasting for decades rather than just a correction or cyclical bear market, then the start may turn out to be similar to how the 32 year bear market started around 1950 that ended in 1981-1982.
In the prior long term bond bear market, the Federal Reserve had successfully pegged the 10 year treasury yield in a 2.25% to 2.5% range between 1945 to 1951, when a market rate would have been far higher without FED manipulation based on inflation trends. Before the Accord: U.S. Monetary-Financial Policy, 1945-51
10 Year Treasury Rate by Year
FED Manipulated Rates:
FED Non-Manipulated Rates:
CPI Annual: Consumer Price Index, 1913- | Federal Reserve Bank of Minneapolis
Between 1946-1951, the annual average CPI was 6.43%. The average annual yield on the ten year treasury was 2.28%. I would not dig too deep into how that happened since the most obvious explanation, Federal Reserve manipulation to an abnormally low level, is plain to see in the data and is the only explanation that makes any sense.
When the FED quit manipulating the yield curve, the ten year treasury yield rose from the artificially created 2.25%-2.5% range to a free market set range that gradually moved to 4.7+% by 1960, even though the inflation numbers between 1952 through 1960 were much lower than during the 1946-1951 period.
The bond bear market started soon after the FED ceased to manipulate rates, but the blood letting was more like torture by thousands of paper cuts, rather than a sudden coups de grâce, which would come later in that 32 year secular bond bear market.
10-Year US Treasury Note Yield Since 1790 - Business Insider
+++
Apple Forecast Falls Short After iPhone Sales Miss Estimates-Bloomberg; Downgraded Apple faces ‘saturated market’ for iPhones- analysts react to earnings - MarketWatch
+++++
Portfolio Management:
I am currently focused on purchasing high dividend paying stocks that are being shellacked due to the rise in interest rates. All purchases are what I call small ball odd lots using commission free trades.
There are several reasons for tip toeing here.
First, I am catching falling knifes and have no good idea when the knife will stop falling. As long as the slide continues, I am at least lowering my average cost per share and increasing my dividend yield.
Second, I still have an abundance of commission free trades, so it is cost effective to buy small lots using them.
Fidelity Account as of 2/3/18:
The overall goal is to sell the positions so acquired at whatever profit may be available after collecting several dividend payments. The twist may be to sell the highest cost lots when I can do so profitably and then to keep longer term the lower cost shares.
For the first time in several weeks, possibly months, I went two consecutive days without buying a CD or bond last week. I am going to allow the proceeds from maturing securities to pile up into cash for awhile.
Last Friday, I looked for the first time in weeks at investment grade bonds maturing in 2024-2026. I may start to nibble in those maturities soon, spacing out purchases over time. My first trade may not occur until the 10 year treasury yield hits 3%.
My gut informs me that rates can only go up so far, at least as long as the ECB other other central banks maintain their extraordinarily abnormal monetary policies. I would include the FED in that list of other central banks since its monetary policy remains extremely accommodative given current U.S. economic conditions, inflation numbers and inflation expectations.
If I had my entire at risk portfolio invested in high quality corporate bonds maturing in equal dollars amounts each year between 2019-2028, with a weighted average interest rate somewhere close to 3.5%, I would achieve my financial objectives comfortably and would be able to invest most of that cash flow into more of the same or into other asset classes including stocks.
I slashed my exposure to bonds maturing in 2022 through 2026 last year, primarily during the second half.
I can not now achieve the 3.5% weighted average interest rate, though construction of a bond portfolio equally weighted in maturities between 2023-2028 could easily hit that 3.5% weighted average bogey. Its the 2019-2022 period that would drag down the composite yield below 3.5%.
++++
Interest Rates:
As I discussed in a recent comment, the Stock Jocks were not concerned at all about the rise in interest rates until recently.
The ten year treasury yield started its latest move higher in early September 2017. 2017 Daily Treasury Yield Curve Rates The closing yield on 9/7/17 was 2.05%. The S & P 500 closed that day at 2465.10.
On 1/26/18, the S & P 500 closed at 2,872.87 with the ten year treasury yield then at 2.66%. Between 9/7/17 and 1/26/18, the S & P 500 was up 16.54% and the ten year treasury yield had increased by 29.76%.
Yesterday, the closing yield was near 2.84%, and the SPX closed at 2762.13.
While the madness of crowds is not susceptible to rational explanation, the Stock Jock herd may have decided to reverse course last week based more on the uncertainty about the future course of interest rates rather than the actual increase since 1/26/18.
I have previously discussed that there was resistance in the 2.6-2.62% range. On two prior occasions, the ten year yield ended its uptrend after hitting that resistance level and then started to move back down.
10-Year Treasury Constant Maturity Rate-St. Louis Fed
There was also a break in the trend-line when rates broke above that resistance level. Bill Gross: 2.6% 10-year yield is the key to everything this year (20 year trend-line starting in 1987)
So the question now is how much higher will rates go and that creates uncertainty about stock valuations at the current elevated P/E levels.
In a free market where investors set intermediate and longer term interest rates without the heavy hand of Central Bank manipulation, the U.S. ten year treasury yield would generally be around 2-2.5% over the anticipated average annual CPI rate over the same ten year period.
Using the break-even inflation rate numbers, the current anticipated annual average CPI prediction for the next ten years is 2.09% and that estimate has been moving up.
Take the 2.84% nominal yield as of 2/2/18: Daily Treasury Yield Curve Rates
And Then Subtract the .75 real yield Daily Treasury Real Yield Curve Rates
At just a 2% spread to that inflation rate, the ten year treasury would be at 4.09% at the current time. The actual nominal number is 2.84%.
The central banks, both in the U.S. and other developed countries, are still in the rate manipulation business however. And we have seen this picture of rate spikes several times already prove to be only temporary. But this time may be the real deal too.
The 2013 rate spike ended since the CBs were still aggressively manipulating interest rates to abnormally low levels.
There are some key differences between the rate spike now and the one in 2013 which I viewed then as the market's first effort to move to normalized interest rates.
First, the FED had not yet changed its zero interest rate policy in 2013. Short term rates were near zero. Short term rates are now moving up with the 2 year treasury note crossing 2% for the first time since the Near Depression.
2-Year Treasury Constant Maturity Rate- St. Louis Fed
Second, the FED has quit buying treasuries and mortgage backed securities and is now reducing the size of its balance sheet. This is occurring at a time that the federal government will have to increase its borrowings due budget deficits and the rise in its interest costs.
Third, the ECB is near the end of its QE program.
Fourth, the world is now in a synchronized global economy recovery with inflation and inflation expectations starting to rise. During the 2013 rate spike, inflation remained about the same and inflation expectations actually went down a notch.
++++
Trump:
Normally, I would be concerned at the present time about a substantial increase in infrastructure spending adding to inflation pressures.
Trump talked about a $1.5 trillion infrastructure plan during his State of the Union speech. I never watch those speeches, viewing them as B.S. and the GOP's infrastructure plan falls well within that B.S. category.
I am not concerned about Trump's plan adding to inflation since the "plan" is bogus.
Trump’s new infrastructure “plan,” explained - Vox
Trump’s infrastructure plan is a private, expensive bridge to nowhere | TheHill;
Trump’s $1.5 Trillion Infrastructure Plan Is Light on Federal Funds, and Details - The New York Times;
State of the Union: President Trump's infrastructure plan - CBS News
Trump's "plan" calls for the federal government to spend only $200 billion over the next decade. The rest of the money would have to come from private businesses (think toll roads here) and local governments. Why Trump’s Infrastructure Plan Should Scare the Crap Out of You | Vanity Fair The general idea is to give private companies tax incentives to build and then charge the public for using the project. This plan is DOA and does not come anywhere close to what is needed.
In Tennessee, toll roads are forbidden and any attempt to change the law would likely result in a legislators losing their re-election bids and possibly tarred and feathered as well. Does Trump's infrastructure plan go far enough to help states like Tennessee? - CBS News
American Society of Civil Engineers 2017 Report Card on America's Infrastructure:
America's Grades | ASCE's 2017 Infrastructure Report Card
Back in early 2009, when the Democrats controlled all branches, I was extremely critical of their stimulus program that had minimal infrastructure expenditures. American Recovery and Reinvestment Act of 2009 - Wikipedia
The Democrats had forgotten the lesson taught by FDR. If the federal government is going to engage in significant deficit spending to stimulate a severely weakened economy, the money needs to spent on infrastructure projects over a multi-year time frame.
Even today, about 85 years after FDR became President in January 1933, the projects built with borrowed money back in the 1930s are still in use. Living New Deal | Still Working For America What exactly did the nation build with the 2009 stimulus which my GOP friends derisively call "Obama Bucks"? I don't think that you could now point to anything substantial. Even the tax cuts provided in that stimulus bill were mostly of very short duration. And, without question, the entire 2009 stimulus cost was needed to repair and build U.S. infrastructure.
++
Trump enjoys lying and misleading voters. It is unfortunate that millions are so easily misled and manipulated by a person who is obviously a Demagogue.
I am unaware of anyone, living or dead, who has publicly lied as much as Trump, though I can not assess the period before words were written for posterity. He takes great pride in his ability to manipulate people with palpably untrue and deliberately misleading statements.
My rough estimation is that about 50% of the U.S. voting age population have come to the only conclusion about Trump that is rationally possible. He is completely untrustworthy. I doubt that the percentage who hold that opinion will ever go down, since Trump will reinforce that irrefutable conclusion daily throughout his Presidential term.
The large percentage of the population who view Trump as a role model for their children and trustworthy live in their own reality creations and are permanently immunized against facts. I am going to prepare a curriculum for the children of those Trump acolytes, that will of course include a 60 minute weekly mandatory viewing of selected videos including the Access Hollywood tape and many more, plus many written course materials delving into Trump's lawsuits, his stiffing of bond owners and contractors, his bankruptcies, the creation of the brand Trump based on false information, and his frequent nefarious adventures like Trump University. Trump University: Yes, It Was a Massive Scam | National Review (a conservative magazine founded by William F. Buckley Jr.)
Trump falsely claims his address was the most viewed of all time - Feb. 1, 2018;
Donald Trump’s misleading claims about immigration in State of the Union address | PolitiFact;
Donald Trump's misleading claim about chain migration, unlimited sponsorship of distant relatives | PolitiFact;
Ice Caps at Record Low, Not High - FactCheck.org
FactChecking Trump's State of the Union - FactCheck.org
‘Art of the Deal’ Ghostwriter: Trump is ‘Deeply Disturbed’ and ‘Utterly Untrustworthy’
Trump has not yet taken credit for the market's decline last week. What gives?
He has certainly been quick to credit himself with the rise since his election.
I am wondering who he will blame when and if the market retraces all or most of the post-election rally which it could do before his first term ends. George Junior had a powerful stock market rally between September 2002 and early October 2007, moving from around 800 to 1550, but the S & P 500 ended up declining by 26.75% during his 8 year term. Forbes Everything looked great until it didn't.
Still, I do not expect a bull market killing recession prior to 2019. The last recession ended in June 2009.
A one decade expansion is one long economic recovery. nber.org/cycles
Two reasons IMO for the current expansion's longevity are the subdued nature of GDP growth and Central Banks keeping for an extended period of time short and intermediate term interest rates at negative nominal and negative real levels, depending on the maturity.
The average expansion since 1900 averages 47 months, though there have been 3 expansions since WWII greater than 100 months and none before then. (see page 17 JPM Guide to the Markets).
+++++
Joe Arpaio seems to me to embody the values of the modern day GOP: Joe Arpaio Needs More Information Before He'll Condemn A Paper That Denies The Holocaust
Another republican from Arizona, Paul Gosar, demanded the Capitol Police arrest the Dreamers who attended the State of the Union speech. Gosar Asks Capitol Police, DOJ to Arrest ‘Illegal Aliens’ at State of the Union.
Gosar (R-AZ) also wants top FBI and DOJ officials to be arrested for treason. GOP lawmaker calls for FBI, DOJ officials to face 'treason' charges - POLITICO
+++++++++
1. Small Ball:
A. Bought 20 Gramercy Property-Used Commission Free Trade (2 ten lot trades at $25.65 and at $24.45):
Quote: Gramercy Property Trust (GPT)
Website: Gramercy Property Trust
Our Portfolio | Explore Our Markets | Gramercy Property Trust
This 10 share "buying program" will stop at 50 shares and I will only average down with any additional purchases.
I have never bought GPT shares prior to these two ten lot purchases.
I did own Chambers Property. Gramercy merged into Chambers and then the combined entity changed its name to Gramercy Property Trust. The monthly dividend paid by Chambers was changed into a quarterly one and was reduced initially by 13.73%. Gramercy thereafter underwent a 1 for 3 reverse stock split. Gramercy Property Trust Announces 1-for-3 Reverse Share Split
Prior to the reverse stock split, I sold all of my GPT shares:
Item # 2. Sold 122+ GPT at $8.424-Roth IRA: Update For Equity REIT Basket Strategy As Of 4/12/16 - South Gent | Seeking Alpha;
Item # 1. Sold 699+ Gramercy REIT (NYSE:GPT) in Two Accounts: Update For Equity REIT Basket Strategy As Of 3/21/16 - South Gent | Seeking Alpha
South Gent's Comment Blog # 2: Sold Remaining 396+ GPT Shares at $9.09
GPT Realized Trading Gains: +$984.68
On a split adjusted basis, the last disposition at $9.09 was at a split adjusted price of $27.27. The shares thereafter went up, forming a double top last year near $31 per share and started a persistent decline after the second top last October. Gramercy Property Trust Interactive Chart
IMO, the stock was overvalued at $27 and was significantly overvalued as it moved higher into its first top last June.
I am not enthusiastic about the prices paid for the two 10 share lots, which is expressed in the fact that I have only bought 20 shares and those shares were bought in 10 share lots.
A major part of my concern now is the potential for a persistent rise in interest rates that will negatively impact stock prices for all equity REITs. (Scroll to "Interest Rate Movements and REIT Stocks: Update For REIT Basket Strategy As Of 8/11/15-South Gent | Seeking Alpha)
Dividends: Quarterly at $.375 per share ($1.5 annually)
Last Ex Dividend Date 12/28/17
Gramercy Property Trust Declares Fourth Quarter 2017 Dividends
Dividend Yield at a Total Cost Per Share of $25.065 = 5.98%
Last Dividend Raise: $.33 to $.375 effective for 2017 1st Quarter Payment
2017 Third Quarter Results:
Gramercy Property Trust Reports Third Quarter 2017 Financial Results
I am not impressed.
Note that core FFO and AFFO per share numbers have gone down for the 9 month period ending in 9/30/17 compared to the same period in 2016, while the share count has gone way up. I am not surprised that the stock has retreated from $31 to below $26 when I bought this 10 share lot at $25.68.
The problem with REITs in an empire building mode is that there is a persistent shuffling of the property portfolio. Maybe it will work but there is such a large cloud of dust that is hard to know one way or the other. Current results do not suggest that the asset shuffling is working out to benefit shareholders.
Properties that do not work out so well become non-core for that reason, though another is given in the press release that generally is grounded on some change in strategy. Then another intense round of buying and selling occurs in pursuit of a different strategy.
Portfolio Acquisitions: Third Quarter 2017:
Gramercy Property Trust Agrees to Purchase $331 Million, 9-Property Industrial Portfolio (8/30/17)"Over 80% of the NOI for the Portfolio is concentrated in four markets (Atlanta, Boston, Chicago and the Inland Empire) and nearly 90% of the rent from the Portfolio comes from a single, market-leading tenant. At closing, which is expected to occur by the end of the third quarter of 2017, the Company will assume $137 million of in-place debt, and will issue $133 million in OP Units to fund the acquisition. The OP Unit price will be based on a 30-day VWAP as of August 29, 2017, or $29.56 per share. The Company is acquiring the Portfolio at a 6.3% cash capitalization rate.")
Gramercy Property Trust Agrees to Purchase $479 Million Core Logistics Portfolio (8/22/17) ("entered into an agreement to acquire a 41-property, 7.8 million square foot portfolio of modern warehouse industrial buildings (the “Portfolio”) for $479 million. The Portfolio is 93% leased with a weighted average remaining lease term of 4.1 years; near term lease roll is concentrated in properties that have contract rents which are either at or below market rent levels. The Portfolio is 100% located in six key logistics markets throughout the United States which include Atlanta, Chicago, Columbus, Dallas, Houston and Memphis. The Company will acquire the Portfolio free and clear of any debt at a 6.2% capitalization rate on estimated stabilized NOI.")
For each large purchase, there is a seller willing to part with the part at the price offered. I would probably be selling to Gramercy.
Third Quarter Ongoing Build to Suit Projects:
Share Issuances:
Third Quarter
A. Sold 30 out of 135 NVS at $93.85-Highest Cost Lot:
Profit Snapshot: +$184.26
Quote: Novartis AG ADR (NVS)
Closing Price Last Friday (2/2/18): NVS $88.39 -$2.16 -2.39%
My existing position is in another account (reinvesting the dividend):
Novartis Annual Report 2017
Dividends: NVS pays an annual dividend in Swiss Francs that will be converted in USDs for the ADR owners. Both Fidelity and Vanguard will asset my treaty right to no more than a 15% withholding tax. (see Article 10.2: TAX CONVENTION WITH SWISS CONFEDERATION)
Many brokers will fail to do so resulting in a 35% Swiss tax on the dividend.
Novartis increased its annual dividend by 2% from the preceding year. The new dividend is CHF2.8. Dividend Information | Novartis
Last Earnings Report: NVS popped in price after releasing this report which is what caused me to sell my highest cost lot at $93.85.
Importantly, the Alcon division grew sales by 4% and core operating income by 5%. Free cash flow grew 10% to $10.4 in 2017.
Growth Drivers in the 4th Quarter:
New Approvals and Regulatory Opinions in the 4th Quarter:
Alcon Strategic Review:
3. REGIONAL BANK BASKET STRATEGY:
A. SOLD 100 HBAN at $16.12 (used commission free trade):
Profit Snapshot: +$254.75
Item # 1.A. Bought 100 HBAN at $13.58 (12/7/17 Post)
As discussed in that post, HBAN deservedly crashed and burned during the Near Depression which is reflected in a long term chart:
Quote: Huntington Bancshares Inc. (HBAN)
HBAN Analyst Estimates
Huntington Bancshares Incorporated Reports Record Quarterly and Annual Earnings (2017 E.P.S. ex-items= $.98)
This sell was based primarily on profit taking.
The surge in HBAN's price since my purchase did take the valuation to the upper end of my fair value range.
Other reasons include the following. HBAN is not a major beneficiary of the tax rate change given its already low effective tax rate. Net charge offs at .25% of average loans and non-performing loans are already at historical lows.
Closing Price Last Friday (2/2/18): HBAN $16.08 -$0.26 -$1.59%
4. Short Term Bond/CD Ladder Basket Strategy:
The BLS reported that the economy added 200K new jobs last month. The job gain for November was cut by 36K, while the number for December was revised higher by 12K to 160K. Employment Situation Summary
The U-6 number increased to 8.2% from 8.1% in December. Table A-15. Alternative measures of labor underutilization
Worker pay increased by 2.9% for the 12 month period ending in January. It will be important to watch how this gain holds up in the coming months. The labor market is tight and wage gains are to be expected as employers have to ante up to keep existing employees from bolting to other jobs.
Big pay gains in January favor high-income workers over minimum-wage workers - MarketWatch
The work week declined .02 hours in January to 34.2, partly due to the weather.
Job Creation Numbers By Month: Compare 1st Year of Trump's Administration with Last 5 Years Under Obama:
2012 2.151M
2013 2.301M
2014 3.005M
2015 2.712M
2016 2.344M
2017 2.173M
Sourced: Bureau of Labor Statistics Data
Yes, I know from listening to Fox "News" and to Trump that Donald inherited one big mess; and job growth has surged during his first year in office compared to Obama's last five years.
Among those of us who remain grounded in reality rather than reality creations, a rapidly diminishing part of the population, U.S. job growth is slowing down. And, without question, job growth in Trump's first year was substantially below the recent 2014 and 2015 peak years.
++++++++
Market and Market Commentary:
J P Morgan Guide To The Markets as of 12/31/17 (contains an abundance of useful information) If that link does not work properly, the latest JPM report can be downloaded here: Guide to the Markets - J.P. Morgan Asset Management
The DJIA declined 665.76 points last Friday. Perhaps, we can take some solace in that the decline was not 666. For those stock market historicans, the bull market started after the SPX hit an intra-day low of 666 in March 2009. In This Devil of a Market, Could 666 Be the Bottom? | Seeking Alpha (published 3/9/2009).
Junk-bond market getting riled up over potential crash into a ‘maturity wall’ - MarketWatch (Moody's estimates that $104B in junk bonds will mature in 2019, up from about $36B this year)
A junk bond ETF has only a 5.31% yield according to Marketwatch: SPDR Bloomberg Barclays High Yield Bond ETF (JNK)
Bank of America: Sell signal triggered for stocks - MarketWatch (too much greed and not enough fear)
Bond fund manager who called dollar’s slide says ‘it’s not too late to move out of U.S. bonds’-MarketWatch
It is certainly possible that bonds have entered into a long term secular bear market already. However, that conclusion can not be drawn with any certainty yet since there have been many false starts.
If the bond market has started one, meaning a long term secular bear market lasting for decades rather than just a correction or cyclical bear market, then the start may turn out to be similar to how the 32 year bear market started around 1950 that ended in 1981-1982.
In the prior long term bond bear market, the Federal Reserve had successfully pegged the 10 year treasury yield in a 2.25% to 2.5% range between 1945 to 1951, when a market rate would have been far higher without FED manipulation based on inflation trends. Before the Accord: U.S. Monetary-Financial Policy, 1945-51
10 Year Treasury Rate by Year
FED Manipulated Rates:
FED Non-Manipulated Rates:
CPI Annual: Consumer Price Index, 1913- | Federal Reserve Bank of Minneapolis
Between 1946-1951, the annual average CPI was 6.43%. The average annual yield on the ten year treasury was 2.28%. I would not dig too deep into how that happened since the most obvious explanation, Federal Reserve manipulation to an abnormally low level, is plain to see in the data and is the only explanation that makes any sense.
When the FED quit manipulating the yield curve, the ten year treasury yield rose from the artificially created 2.25%-2.5% range to a free market set range that gradually moved to 4.7+% by 1960, even though the inflation numbers between 1952 through 1960 were much lower than during the 1946-1951 period.
The bond bear market started soon after the FED ceased to manipulate rates, but the blood letting was more like torture by thousands of paper cuts, rather than a sudden coups de grâce, which would come later in that 32 year secular bond bear market.
10-Year US Treasury Note Yield Since 1790 - Business Insider
+++
Apple Forecast Falls Short After iPhone Sales Miss Estimates-Bloomberg; Downgraded Apple faces ‘saturated market’ for iPhones- analysts react to earnings - MarketWatch
+++++
Portfolio Management:
I am currently focused on purchasing high dividend paying stocks that are being shellacked due to the rise in interest rates. All purchases are what I call small ball odd lots using commission free trades.
There are several reasons for tip toeing here.
First, I am catching falling knifes and have no good idea when the knife will stop falling. As long as the slide continues, I am at least lowering my average cost per share and increasing my dividend yield.
Second, I still have an abundance of commission free trades, so it is cost effective to buy small lots using them.
Fidelity Account as of 2/3/18:
For the first time in several weeks, possibly months, I went two consecutive days without buying a CD or bond last week. I am going to allow the proceeds from maturing securities to pile up into cash for awhile.
Last Friday, I looked for the first time in weeks at investment grade bonds maturing in 2024-2026. I may start to nibble in those maturities soon, spacing out purchases over time. My first trade may not occur until the 10 year treasury yield hits 3%.
My gut informs me that rates can only go up so far, at least as long as the ECB other other central banks maintain their extraordinarily abnormal monetary policies. I would include the FED in that list of other central banks since its monetary policy remains extremely accommodative given current U.S. economic conditions, inflation numbers and inflation expectations.
If I had my entire at risk portfolio invested in high quality corporate bonds maturing in equal dollars amounts each year between 2019-2028, with a weighted average interest rate somewhere close to 3.5%, I would achieve my financial objectives comfortably and would be able to invest most of that cash flow into more of the same or into other asset classes including stocks.
I slashed my exposure to bonds maturing in 2022 through 2026 last year, primarily during the second half.
I can not now achieve the 3.5% weighted average interest rate, though construction of a bond portfolio equally weighted in maturities between 2023-2028 could easily hit that 3.5% weighted average bogey. Its the 2019-2022 period that would drag down the composite yield below 3.5%.
++++
Interest Rates:
As I discussed in a recent comment, the Stock Jocks were not concerned at all about the rise in interest rates until recently.
The ten year treasury yield started its latest move higher in early September 2017. 2017 Daily Treasury Yield Curve Rates The closing yield on 9/7/17 was 2.05%. The S & P 500 closed that day at 2465.10.
On 1/26/18, the S & P 500 closed at 2,872.87 with the ten year treasury yield then at 2.66%. Between 9/7/17 and 1/26/18, the S & P 500 was up 16.54% and the ten year treasury yield had increased by 29.76%.
Yesterday, the closing yield was near 2.84%, and the SPX closed at 2762.13.
While the madness of crowds is not susceptible to rational explanation, the Stock Jock herd may have decided to reverse course last week based more on the uncertainty about the future course of interest rates rather than the actual increase since 1/26/18.
I have previously discussed that there was resistance in the 2.6-2.62% range. On two prior occasions, the ten year yield ended its uptrend after hitting that resistance level and then started to move back down.
There was also a break in the trend-line when rates broke above that resistance level. Bill Gross: 2.6% 10-year yield is the key to everything this year (20 year trend-line starting in 1987)
So the question now is how much higher will rates go and that creates uncertainty about stock valuations at the current elevated P/E levels.
In a free market where investors set intermediate and longer term interest rates without the heavy hand of Central Bank manipulation, the U.S. ten year treasury yield would generally be around 2-2.5% over the anticipated average annual CPI rate over the same ten year period.
Using the break-even inflation rate numbers, the current anticipated annual average CPI prediction for the next ten years is 2.09% and that estimate has been moving up.
Take the 2.84% nominal yield as of 2/2/18: Daily Treasury Yield Curve Rates
And Then Subtract the .75 real yield Daily Treasury Real Yield Curve Rates
At just a 2% spread to that inflation rate, the ten year treasury would be at 4.09% at the current time. The actual nominal number is 2.84%.
The central banks, both in the U.S. and other developed countries, are still in the rate manipulation business however. And we have seen this picture of rate spikes several times already prove to be only temporary. But this time may be the real deal too.
The 2013 rate spike ended since the CBs were still aggressively manipulating interest rates to abnormally low levels.
There are some key differences between the rate spike now and the one in 2013 which I viewed then as the market's first effort to move to normalized interest rates.
First, the FED had not yet changed its zero interest rate policy in 2013. Short term rates were near zero. Short term rates are now moving up with the 2 year treasury note crossing 2% for the first time since the Near Depression.
2-Year Treasury Constant Maturity Rate- St. Louis Fed
Second, the FED has quit buying treasuries and mortgage backed securities and is now reducing the size of its balance sheet. This is occurring at a time that the federal government will have to increase its borrowings due budget deficits and the rise in its interest costs.
Third, the ECB is near the end of its QE program.
Fourth, the world is now in a synchronized global economy recovery with inflation and inflation expectations starting to rise. During the 2013 rate spike, inflation remained about the same and inflation expectations actually went down a notch.
++++
Trump:
Normally, I would be concerned at the present time about a substantial increase in infrastructure spending adding to inflation pressures.
Trump talked about a $1.5 trillion infrastructure plan during his State of the Union speech. I never watch those speeches, viewing them as B.S. and the GOP's infrastructure plan falls well within that B.S. category.
I am not concerned about Trump's plan adding to inflation since the "plan" is bogus.
Trump’s new infrastructure “plan,” explained - Vox
Trump’s infrastructure plan is a private, expensive bridge to nowhere | TheHill;
Trump’s $1.5 Trillion Infrastructure Plan Is Light on Federal Funds, and Details - The New York Times;
State of the Union: President Trump's infrastructure plan - CBS News
Trump's "plan" calls for the federal government to spend only $200 billion over the next decade. The rest of the money would have to come from private businesses (think toll roads here) and local governments. Why Trump’s Infrastructure Plan Should Scare the Crap Out of You | Vanity Fair The general idea is to give private companies tax incentives to build and then charge the public for using the project. This plan is DOA and does not come anywhere close to what is needed.
In Tennessee, toll roads are forbidden and any attempt to change the law would likely result in a legislators losing their re-election bids and possibly tarred and feathered as well. Does Trump's infrastructure plan go far enough to help states like Tennessee? - CBS News
American Society of Civil Engineers 2017 Report Card on America's Infrastructure:
America's Grades | ASCE's 2017 Infrastructure Report Card
Back in early 2009, when the Democrats controlled all branches, I was extremely critical of their stimulus program that had minimal infrastructure expenditures. American Recovery and Reinvestment Act of 2009 - Wikipedia
The Democrats had forgotten the lesson taught by FDR. If the federal government is going to engage in significant deficit spending to stimulate a severely weakened economy, the money needs to spent on infrastructure projects over a multi-year time frame.
Even today, about 85 years after FDR became President in January 1933, the projects built with borrowed money back in the 1930s are still in use. Living New Deal | Still Working For America What exactly did the nation build with the 2009 stimulus which my GOP friends derisively call "Obama Bucks"? I don't think that you could now point to anything substantial. Even the tax cuts provided in that stimulus bill were mostly of very short duration. And, without question, the entire 2009 stimulus cost was needed to repair and build U.S. infrastructure.
++
Trump enjoys lying and misleading voters. It is unfortunate that millions are so easily misled and manipulated by a person who is obviously a Demagogue.
I am unaware of anyone, living or dead, who has publicly lied as much as Trump, though I can not assess the period before words were written for posterity. He takes great pride in his ability to manipulate people with palpably untrue and deliberately misleading statements.
My rough estimation is that about 50% of the U.S. voting age population have come to the only conclusion about Trump that is rationally possible. He is completely untrustworthy. I doubt that the percentage who hold that opinion will ever go down, since Trump will reinforce that irrefutable conclusion daily throughout his Presidential term.
The large percentage of the population who view Trump as a role model for their children and trustworthy live in their own reality creations and are permanently immunized against facts. I am going to prepare a curriculum for the children of those Trump acolytes, that will of course include a 60 minute weekly mandatory viewing of selected videos including the Access Hollywood tape and many more, plus many written course materials delving into Trump's lawsuits, his stiffing of bond owners and contractors, his bankruptcies, the creation of the brand Trump based on false information, and his frequent nefarious adventures like Trump University. Trump University: Yes, It Was a Massive Scam | National Review (a conservative magazine founded by William F. Buckley Jr.)
Trump falsely claims his address was the most viewed of all time - Feb. 1, 2018;
Donald Trump’s misleading claims about immigration in State of the Union address | PolitiFact;
Donald Trump's misleading claim about chain migration, unlimited sponsorship of distant relatives | PolitiFact;
Ice Caps at Record Low, Not High - FactCheck.org
FactChecking Trump's State of the Union - FactCheck.org
‘Art of the Deal’ Ghostwriter: Trump is ‘Deeply Disturbed’ and ‘Utterly Untrustworthy’
Trump has not yet taken credit for the market's decline last week. What gives?
He has certainly been quick to credit himself with the rise since his election.
I am wondering who he will blame when and if the market retraces all or most of the post-election rally which it could do before his first term ends. George Junior had a powerful stock market rally between September 2002 and early October 2007, moving from around 800 to 1550, but the S & P 500 ended up declining by 26.75% during his 8 year term. Forbes Everything looked great until it didn't.
Still, I do not expect a bull market killing recession prior to 2019. The last recession ended in June 2009.
A one decade expansion is one long economic recovery. nber.org/cycles
Two reasons IMO for the current expansion's longevity are the subdued nature of GDP growth and Central Banks keeping for an extended period of time short and intermediate term interest rates at negative nominal and negative real levels, depending on the maturity.
The average expansion since 1900 averages 47 months, though there have been 3 expansions since WWII greater than 100 months and none before then. (see page 17 JPM Guide to the Markets).
+++++
Joe Arpaio seems to me to embody the values of the modern day GOP: Joe Arpaio Needs More Information Before He'll Condemn A Paper That Denies The Holocaust
Another republican from Arizona, Paul Gosar, demanded the Capitol Police arrest the Dreamers who attended the State of the Union speech. Gosar Asks Capitol Police, DOJ to Arrest ‘Illegal Aliens’ at State of the Union.
Gosar (R-AZ) also wants top FBI and DOJ officials to be arrested for treason. GOP lawmaker calls for FBI, DOJ officials to face 'treason' charges - POLITICO
+++++++++
1. Small Ball:
A. Bought 20 Gramercy Property-Used Commission Free Trade (2 ten lot trades at $25.65 and at $24.45):
Quote: Gramercy Property Trust (GPT)
Website: Gramercy Property Trust
Our Portfolio | Explore Our Markets | Gramercy Property Trust
This 10 share "buying program" will stop at 50 shares and I will only average down with any additional purchases.
I have never bought GPT shares prior to these two ten lot purchases.
I did own Chambers Property. Gramercy merged into Chambers and then the combined entity changed its name to Gramercy Property Trust. The monthly dividend paid by Chambers was changed into a quarterly one and was reduced initially by 13.73%. Gramercy thereafter underwent a 1 for 3 reverse stock split. Gramercy Property Trust Announces 1-for-3 Reverse Share Split
Prior to the reverse stock split, I sold all of my GPT shares:
Item # 2. Sold 122+ GPT at $8.424-Roth IRA: Update For Equity REIT Basket Strategy As Of 4/12/16 - South Gent | Seeking Alpha;
Item # 1. Sold 699+ Gramercy REIT (NYSE:GPT) in Two Accounts: Update For Equity REIT Basket Strategy As Of 3/21/16 - South Gent | Seeking Alpha
South Gent's Comment Blog # 2: Sold Remaining 396+ GPT Shares at $9.09
GPT Realized Trading Gains: +$984.68
On a split adjusted basis, the last disposition at $9.09 was at a split adjusted price of $27.27. The shares thereafter went up, forming a double top last year near $31 per share and started a persistent decline after the second top last October. Gramercy Property Trust Interactive Chart
IMO, the stock was overvalued at $27 and was significantly overvalued as it moved higher into its first top last June.
I am not enthusiastic about the prices paid for the two 10 share lots, which is expressed in the fact that I have only bought 20 shares and those shares were bought in 10 share lots.
A major part of my concern now is the potential for a persistent rise in interest rates that will negatively impact stock prices for all equity REITs. (Scroll to "Interest Rate Movements and REIT Stocks: Update For REIT Basket Strategy As Of 8/11/15-South Gent | Seeking Alpha)
Dividends: Quarterly at $.375 per share ($1.5 annually)
Last Ex Dividend Date 12/28/17
Gramercy Property Trust Declares Fourth Quarter 2017 Dividends
Dividend Yield at a Total Cost Per Share of $25.065 = 5.98%
Last Dividend Raise: $.33 to $.375 effective for 2017 1st Quarter Payment
2017 Third Quarter Results:
Gramercy Property Trust Reports Third Quarter 2017 Financial Results
I am not impressed.
Note that core FFO and AFFO per share numbers have gone down for the 9 month period ending in 9/30/17 compared to the same period in 2016, while the share count has gone way up. I am not surprised that the stock has retreated from $31 to below $26 when I bought this 10 share lot at $25.68.
The problem with REITs in an empire building mode is that there is a persistent shuffling of the property portfolio. Maybe it will work but there is such a large cloud of dust that is hard to know one way or the other. Current results do not suggest that the asset shuffling is working out to benefit shareholders.
Properties that do not work out so well become non-core for that reason, though another is given in the press release that generally is grounded on some change in strategy. Then another intense round of buying and selling occurs in pursuit of a different strategy.
Portfolio Acquisitions: Third Quarter 2017:
Gramercy Property Trust Agrees to Purchase $331 Million, 9-Property Industrial Portfolio (8/30/17)"Over 80% of the NOI for the Portfolio is concentrated in four markets (Atlanta, Boston, Chicago and the Inland Empire) and nearly 90% of the rent from the Portfolio comes from a single, market-leading tenant. At closing, which is expected to occur by the end of the third quarter of 2017, the Company will assume $137 million of in-place debt, and will issue $133 million in OP Units to fund the acquisition. The OP Unit price will be based on a 30-day VWAP as of August 29, 2017, or $29.56 per share. The Company is acquiring the Portfolio at a 6.3% cash capitalization rate.")
Gramercy Property Trust Agrees to Purchase $479 Million Core Logistics Portfolio (8/22/17) ("entered into an agreement to acquire a 41-property, 7.8 million square foot portfolio of modern warehouse industrial buildings (the “Portfolio”) for $479 million. The Portfolio is 93% leased with a weighted average remaining lease term of 4.1 years; near term lease roll is concentrated in properties that have contract rents which are either at or below market rent levels. The Portfolio is 100% located in six key logistics markets throughout the United States which include Atlanta, Chicago, Columbus, Dallas, Houston and Memphis. The Company will acquire the Portfolio free and clear of any debt at a 6.2% capitalization rate on estimated stabilized NOI.")
For each large purchase, there is a seller willing to part with the part at the price offered. I would probably be selling to Gramercy.
Third Quarter Ongoing Build to Suit Projects:
Share Issuances:
Third Quarter
Earlier in 2017:
Third Quarter U.S. Property Dispositions:
Europe Property Dispositions:
Gramercy Property Trust Closes Previously Announced Sale of Gramercy Europe Assets to a Consortium of Clients Managed by AXA Investment Managers – Real Assets (7/18/17)
I think that it is best for management to just focus on the U.S.
How can you tell how the company is doing and more importantly will do with all of that shuffling compared to doing far less?
Will the results be clear on an AFFO basis in a few quarters or will there continue to be a cloud of dust?
Are the managers creating long term value and decent growth in future AFFO with all of this activity?
I do not know; and I doubt that anyone really has a good handle on the whether shareholders are better or even worse off. Now is probably a pretty good time for GPT to just focus on what it owns and to do only bolt on acquisitions and build-to-suit projects in core existing markets.
B. ADDED 5 VNQ at $78.12 and 5 at $76.82 :
Closing Price Friday 2/2/18: VNQ $77.11 -0.63 -0.81%
The 52 week high is currently at $86.14, a price hit intra-day on 12/18/17.
This brings me up to 15 shares. This ETF can be bought and sold by Vanguard brokerage customers commission free which is where I am buying these small lots.
Quote: Vanguard REIT ETF
I restarted a position a few days ago with a 5 share purchase at $79.62. Item 1.F. (1/28/18 Post)
I will continue buying in 5 share lots provided the price continues to decline. The price did move up some in late trading last Friday.
Will the results be clear on an AFFO basis in a few quarters or will there continue to be a cloud of dust?
Are the managers creating long term value and decent growth in future AFFO with all of this activity?
I do not know; and I doubt that anyone really has a good handle on the whether shareholders are better or even worse off. Now is probably a pretty good time for GPT to just focus on what it owns and to do only bolt on acquisitions and build-to-suit projects in core existing markets.
B. ADDED 5 VNQ at $78.12 and 5 at $76.82 :
Closing Price Friday 2/2/18: VNQ $77.11 -0.63 -0.81%
The 52 week high is currently at $86.14, a price hit intra-day on 12/18/17.
This brings me up to 15 shares. This ETF can be bought and sold by Vanguard brokerage customers commission free which is where I am buying these small lots.
Quote: Vanguard REIT ETF
I restarted a position a few days ago with a 5 share purchase at $79.62. Item 1.F. (1/28/18 Post)
I will continue buying in 5 share lots provided the price continues to decline. The price did move up some in late trading last Friday.
C. Added 10 ENB at $36.56 (used commission free trade):
USD Priced Quote: Enbridge Inc. (ENB)
CAD Priced Quote: Enbridge Inc. (Canada: Toronto)
Home - Enbridge Inc.
This brings me back up to 40+ shares in this Fidelity account.
I last sold 10 ENB shares in that account at $40.14: Introduction Section 1/4/18 Post
Prior to that transaction, I sold 50 ENB shares in my IB account at $39.03. Item # 3 (12/21/17 Post)
Dividend: Since my last discussion, the quarterly dividend was raised to C$.671 per share from C$.61. Enbridge Dividend History
I am reinvesting the dividend in this account. The next ex dividend date is 2/14/18. The dividend amount for ENB will be paid in USDs after conversion from Canadian Dollars so the amount will vary from quarter to quarter. Generally speaking, even when there is no change in the dividend penny rate, a rise in the CAD/USD after purchase would result in a dividend increase while a decline would operate as a dividend cut.
I will buy 10 more shares in this account, using a commission free trade, when and if the price falls below $34. I would then sell my highest cost lot at over $40 assuming I still had a commission free trade.
Closing Price Last Friday (2/2/18):
USD Priced ADR ENB $34.70 -$1.16 -3.23%
CAD Priced Shares Traded in Toronto: ENB.TO C$43.11 -C$0.88 -2.00%
(CAD fell in value against the USD)
If I took the C$43.11 price and the current quarterly CAD dividend rate of C$.671 per share, I come up with a dividend yield near 6.23%. The actual penny amount and yield for the ADR owner will depend on the currency conversion rate.
ENB is currently a falling knife. ENB Chart YF
2. Healthcare Basket Strategy:
USD Priced Quote: Enbridge Inc. (ENB)
CAD Priced Quote: Enbridge Inc. (Canada: Toronto)
Home - Enbridge Inc.
This brings me back up to 40+ shares in this Fidelity account.
I last sold 10 ENB shares in that account at $40.14: Introduction Section 1/4/18 Post
Prior to that transaction, I sold 50 ENB shares in my IB account at $39.03. Item # 3 (12/21/17 Post)
Dividend: Since my last discussion, the quarterly dividend was raised to C$.671 per share from C$.61. Enbridge Dividend History
I will buy 10 more shares in this account, using a commission free trade, when and if the price falls below $34. I would then sell my highest cost lot at over $40 assuming I still had a commission free trade.
Closing Price Last Friday (2/2/18):
USD Priced ADR ENB $34.70 -$1.16 -3.23%
CAD Priced Shares Traded in Toronto: ENB.TO C$43.11 -C$0.88 -2.00%
(CAD fell in value against the USD)
If I took the C$43.11 price and the current quarterly CAD dividend rate of C$.671 per share, I come up with a dividend yield near 6.23%. The actual penny amount and yield for the ADR owner will depend on the currency conversion rate.
ENB is currently a falling knife. ENB Chart YF
2. Healthcare Basket Strategy:
A. Sold 30 out of 135 NVS at $93.85-Highest Cost Lot:
Profit Snapshot: +$184.26
Quote: Novartis AG ADR (NVS)
Closing Price Last Friday (2/2/18): NVS $88.39 -$2.16 -2.39%
My existing position is in another account (reinvesting the dividend):
Novartis Annual Report 2017
Dividends: NVS pays an annual dividend in Swiss Francs that will be converted in USDs for the ADR owners. Both Fidelity and Vanguard will asset my treaty right to no more than a 15% withholding tax. (see Article 10.2: TAX CONVENTION WITH SWISS CONFEDERATION)
Many brokers will fail to do so resulting in a 35% Swiss tax on the dividend.
Novartis increased its annual dividend by 2% from the preceding year. The new dividend is CHF2.8. Dividend Information | Novartis
Last Earnings Report: NVS popped in price after releasing this report which is what caused me to sell my highest cost lot at $93.85.
Importantly, the Alcon division grew sales by 4% and core operating income by 5%. Free cash flow grew 10% to $10.4 in 2017.
Growth Drivers in the 4th Quarter:
New Approvals and Regulatory Opinions in the 4th Quarter:
Alcon Strategic Review:
3. REGIONAL BANK BASKET STRATEGY:
A. SOLD 100 HBAN at $16.12 (used commission free trade):
Profit Snapshot: +$254.75
Item # 1.A. Bought 100 HBAN at $13.58 (12/7/17 Post)
As discussed in that post, HBAN deservedly crashed and burned during the Near Depression which is reflected in a long term chart:
Quote: Huntington Bancshares Inc. (HBAN)
HBAN Analyst Estimates
Huntington Bancshares Incorporated Reports Record Quarterly and Annual Earnings (2017 E.P.S. ex-items= $.98)
This sell was based primarily on profit taking.
The surge in HBAN's price since my purchase did take the valuation to the upper end of my fair value range.
Other reasons include the following. HBAN is not a major beneficiary of the tax rate change given its already low effective tax rate. Net charge offs at .25% of average loans and non-performing loans are already at historical lows.
Closing Price Last Friday (2/2/18): HBAN $16.08 -$0.26 -$1.59%
4. Short Term Bond/CD Ladder Basket Strategy:
Issuer: Apple Inc. (AAPL)
Credit Ratings:
Bought at a Total Cost of 99.802
Bought at a Total Cost of 99.802
YTM at TC Then at 1.879%
Current Yield at TC = 1.7034%
B. Bought 2 Bank of China 1.5% CDs Maturing on 4/16/18 (3 MONTH CDs):
C. Bought 2 First N.A. 1.6% CDs (monthly interest payments) Maturing on 7/25/18 (6 MONTH CD):
Holding Company: First Bancorp Inc. (FNLC)
D. Bought 1 Shell International 1.625% SU Bond Maturing on 11/10/18:
C. Bought 2 First N.A. 1.6% CDs (monthly interest payments) Maturing on 7/25/18 (6 MONTH CD):
Holding Company: First Bancorp Inc. (FNLC)
D. Bought 1 Shell International 1.625% SU Bond Maturing on 11/10/18:
Finra Page: Bond Detail
Fitch Affirms Shell at 'AA-'; Maintains Negative Outlook
Bought at a Total Cost of 99.852
YTM at TC Then at 1.804%
Current Yield at TC = 1.6274%
E. Bought 1 Whitney Bank 1.6% CD Maturing on 7/12/18 (6 MONTH CD):
Holding Company: Hancock Holding Co. (HBHC)
HBHC Analyst Estimates
F. Added 1 Nextera Energy Capital 1.649% SU Bond Maturing on 9/1/18:
I now own 7 bonds. This quality bond is simply viewed as an alternative to cash in a MM fund.
FINRA Page: Bond Detail (prospectus linked)
Issuer: Wholly Owned Subsidiary of NextEra Energy Inc. (NEE) who guarantees the bonds unconditionally.
NEE Analyst Estimates
Credit Ratings:
Fitch Rates Nextera Energy Capital Holdings' Debentures 'A-'; Outlook Stable
Bought at a Total Cost of 99.868
YTM at TC Then at 1.858%
Current Yield at 1.6512%
G. Bought 2 Compass 1.5% CDs Maturing on 4/19/18 (3 month CDs):
In this account, I had a 1.2% three month CD mature on the day that I bought this 1.5% three month CD.
H. Bought 2 Kimberly Clark 1.85% SU Bonds Maturing on 3/1/2020:
Finra Page: Bond Detail (prospectus linked)
Credit Ratings:
Issuer: Kimberly-Clark Corp. (KMB)
KMB Analyst Estimates
Bought at a Total Cost of 99.356
YTM at TC Then at 2.161%
Current Yield at TC = 1.862%
I. BOUGHT 2 mBank 1.8% CDs (monthly interest payments) Maturing on 1/24/18:
Holding Company: Mackinac Financial Corp. (MFNC)
Mackinac Financial Corporation Announces Third Quarter 2017 Results
J. BOUGHT 2 Cardinal Health 1.95% SU Bonds Maturing on 6/15/18:
FINRA Page: Bond Detail
Issuer: Cardinal Health Inc. (CAH)
Bought at a Total Cost of 100
YTM and Current Yield= 1.95%
At the time of this purchase, the 3 month treasury bill was trading at 1.486%.
I am discussing this trade early to highlight one area where I am focusing some attention.
For whatever reason, I am able to buy some bonds at below par value that are about to mature; and the yields are at least slightly out-of-line with similarly rated paper maturing at about the same time.
This trade is consistent with three primary objectives: (1) preservation of capital; (2) income generation in excess of money market rates; and (3) creating a short term bond/CD ladder with multiple maturities every week.
The third objective is predicated on a belief that short term rates will increase steadily throughout the year. I had an underweight in June 2018 maturities based on lack of availability.
As to income generation, I will be earning 1.95% for more than four months, compared to slightly more than the .98% currently paid by Fidelity's Government MM fund. SPAXX - Fidelity ® Government Money Market Fund (the highest yielding MM fund offered by Fidelity now to individual investors as their sweep account)
As to capital preservation, I have no concerns about Cardinal Health defaulting prior to the 6/15/18 maturity.
The emphasis on short term bonds and CDs purchase is primarily based on a belief that interest rates would continue to rise. There is a balance that needs to be struck between that anticipated movement and the low yields from money market funds used as a source of funds for those purchases.
The Schwab sweep account pays .1% and Fidelity's MM fund is almost up to 1%. IB pays nothing or close to it. While the dollar value of these purchases may go down some due to the rise in rates, they can not go down much, given their short maturities, and will start to move back up as the maturity date moves closer. Since I am buying short term bonds at below par value, I will have a profit on the bonds upon maturity, while the CDs will be redeemed in their principal amount with no loss of capital.
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.
