Adding a Baby Bond to the High Yield Portfolio

We have added the B. Riley 7.50% baby bond (NASDAQ:RILYZ) to the High Yield Portfolio.

This is the last item we are adding for a week or two as the portfolio is 74% invested and we are looking for a Fed Funds rate hike on March 21st of 1/4%.  While the movement of short term rates doesn’t directly affect long rates we are still cautious.

We added the B Riley issue noted above to add another bit of diversity to the portfolio.  RILY has generally performed well, but they have undertaken a couple of large acquisitions in the last year and ‘digestion’ is still taking place.

This particular issue doesn’t mature until 2027 which is further away than we would prefer, but the other 7.50% B Riley issue was trading at a higher price with a lower current yield so this was slightly preferred–although an investor could flip a coin between the issues.  It is noted that the RILYL issue (the other 7.50% issue) does become optionally callable in October of this year–but we don’t believe there is high likelihood of a call.



Adding Shares to the High Yield Portfolio

Today we purchased a full position in the High Yield Portfolio of the mREIT Chimera Investment Corp 8% Fixed-to-Floating rate preferred.

This issue was issued about a year ago and does not enter its floating rate period until 2024. We had to pay more than we really would like to pay ($25.69), but the issue goes ex-dividend tomorrow so we will pick up a quick dividend.

This issue was chosen for a few reasons. Being fixed to floating rate is helpful in the potential face of rising interest rates. Additionally Chimera is a moderately sized mREIT with good management–financial performance in the last couple of years has been reasonably good. The REIT is internally managed which is almost always a positive versus being externally managed. The spread when the floating rate period arrives is 5.791% which is a decent spread.

Be aware that while this is a fixed-to-floating rate issue the floating period being 6 years out will provide only very modest volatility protection for the next few years–thus the issue is susceptible to capital losses if (when) interest rates move higher.

With this purchase the model moves to 64% invested and we will be adding a baby bond in the next couple of days to take us to near 75% invested where we will take a pause before determining the next move.

Markets Tumble as Rates Rise

Geez what a difference 1 day makes. The talking heads were pondering the plateauing of interest rates just yesterday. So of course rates jump and the Fed chair says they probably will move forward with 3-4 interest rates hikes in the coming months barring soft economic data–gee what a surprise–NOT. This is what they have been saying for 6 months. Whether we agree or not that is their plan.

No surprise to us and no damage was done to our holdings by the tick up in interest rates–they closed at 2.91% today. Fed Chair Powell will testify at the Senate on Thursday.

We made 1 purchase today and we will write further at length tonight on our thoughts on the purchase.

These Markets (and investors) are Dazed and Confused

I seldom watch CNBC because all they do is make up shit to talk about–no substance just a lot of time to fill I guess.

As I flipped by the channel today they were discussing whether the 10 year treasury had ‘peaked’. What the hell are they talking about? Peaked for the month of February maybe, but talk of peaking interest rates is pure silliness. Sure the numbers move around but you would have to be a fool to believe that rates have peaked. We know that in March short rates are going to get bumped 1/4% higher. We also know that the Fed still claims they are tapering $20 billion a month right now and that the treasury has to raise about $75 billion in new money for the balance of 2018–how the hell are rates going to fall when $95 billion a month is needed through May and then more than that going forward. It is no wonder investors are continually confused.

Today the 10 year treasury did fall down to 2.84% before closing at 2.87%. Soft new home sales numbers were the culprit of the day–maybe this is what set off the silly talk on CNBC. Analysts seemed surprised about the soft numbers–but as I have watched prices of new construction rise it is no surprise to me. In rural Minnesota you have to spend $350,000 to $400,000 to build a modest house on 5 acres and in town the bare bones starter house is $225,000. While this doesn’t seem like a steep price to folks in California in this area where most folks make $20/hour it is a bunch of money–no wonder sales are soft.

Today we didn’t make any purchases in the model portfolios as we have been working on getting the floating rates and fixed to floating rate preferred table completed. Maybe we will make a buy tomorrow–we will be buying a higher yielding mREIT preferred for the the High Yield Portfolio which will give a new sector representation in the portfolio.

I want to watch Fed chair Powell as he testifies before the House and Senate Tuesday and Thursday to see if his tone is any different from Yellen. Certainly this is as important as any economic data that will be released this week. He could easily send rates to the low 2.80’s or back over 2.90% – we shall see.

Monday Morning Kickoff

After a strong finish last week to the income security markets what will the week ahead bring us?

Last week was a shortened trading week because of Presidents day, but when the week did get underway on Tuesday it looked like interest rates would hold fairly firm in the 2.90% area. Wednesday brought the release of the FED minutes from January which sent the 10 year rate higher–to the mid 2.90’s based upon nothing new at all—no information that was not already known or believed. Thursday rates held firm in the lower 2.90’s. Friday saw rates fall into the 2.85% area before finally closing at 2.87%. All of this 10 basis point range movement was based on no new economic information, but rates (and traders) will drive prices around anytime it suits them.

This week we see the 2nd estimate of 4th quarter GDP on Wednesday and this is not likely to be a market mover as it is likely to be just a tiny bit plus or minus from the previous estimate and barring a total screw-up this won’t be a mover. On Tuesday the Durable Goods Order report is released, Wednesday is the Chicago Purchasing Managers index (PMI) and on Thursday we have Personal Income and Outlays report and the ISM Manufacturing Index. None of these items has historically moved markets–but who knows.

Fed Chair Jerome Powell will be testifying to the house and senate this week on Tuesday and Thursday and this has some potential to move markets if he testifies to congress in a manner that conveys information that is contrary to popular belief.

With the fall in the 10 year treasury yield on Friday of last week prices bounced in the income market. The average price of a preferred share moved up by 12 cents to $24.99/share and there are now 204 issues priced under $25/share compared to 212 last week. REITs moved higher the end of the week and the beaten down issues, such as KIMCO (NYSE:KMI) move nicely higher off of very low levels.

We only had 1 new issue last week and that was from tiny, newer insurance company 1347 Property Insurance Holdings (NASDAQ:PIH). The new 8% cumulative preferred is supposed to be trading now but we can find no evidence of actual trades taking place. This is one which much be checked very closely by potential investors before deciding to take a position as PIH is a very small company with limited operating history.

We made purchases in both the High Yield Income Portfolio as well as the Medium Duration Income Portfolio last week.  The High Yield Portfolio is at 54% invested while the Medium Duration Portfolio is at 77% invested.We will add to the High Yield Model this week, but likely will hold off on the Medium Duration Portfolio.  We will begin earning some dividends and interest in these portfolios in March which will help to alleviate losses caused by higher interest rates.

Also this week we will have our fixed-to-floating rate preferred table posted.  In conjunction with short/medium maturity securities, fixed-to-floating rate issues are where we think the best values lie–or at least where investors need to look to combat rising interest rates.

Incredible Finish to the Week in the Income Markets

After toying with 3% earlier in the week the 10 year treasury fell by 5 basis points today to end the week at 2.87%.

This was a welcome respite for income investors as those holding some of the higher yielding perpetual preferreds saw a couple nice bounces this week which in may cases got recent investors in shares close to break even (or even in the green).

Hardly ever do interest rates move in a straight line–they wiggle up and down, but the trend remains higher. Regardless we are happy to see a nice bounce which helps to ease the pain a bit for now.

The Fed has been a bit of a help this month as thus far they have only had about a $7 billion run off the balance sheet thus far and have made some sizable purchases during the treasury auctions in the last week. Are they going to remain on their advertised $20 billion/month of runoffs? Who knows?

The Medium Duration Income Portfolio turned ‘green’ today with the help of the silly Sotherly Hotels baby bond. We didn’t think we would see green again until mid year as we thought capital losses would outweigh dividends/interest received–always nice to get a bit of a surprise.

We are looking forward to next week–I should get a life I guess. When you are looking forward to next week in the interest rate complex with so much anticipation something is lacking in ones life.

A Limit to What One Should Pay For Shares

We just glanced at the current trading price of the new Sotherly Hotels 7.25% baby bonds and we see that 700 shares just traded at $26.60. This issue has a early call date in 1 year–this means that if it were to be called in a year a buyer at the current price would realize 15 cents for holding 1 year. This is a yield to worst of less than 1%.

While we wished we could have gotten more than the 200 shares we secured at $25.55 we aren’t so crazy that we would pay this kind of price for shares now.

Obviously someone believes that with rising interest rates that the bonds will not be called early and they may well be right–but even so do you want to accept a yield to call in 2021 of 4.9%?

Adding to the High Yield Portfolio

Today we added the Teekay LNG Partners (TGP), 9% perpetual preferred to (NYSE:TGP-A) the High Yield Income Portfolio.

Teekay and all associated companies released earnings today and generally they were very good for shipping companies.  Teekay LNG Partners is a master limited partnership with a large fleet of ships (although many of the ships are owned in partnership with others) which are typically leased for long periods of time–up to about 30 years.  LNG shipping has been a real growth business in the last 10 years as the supply of natural gas in the United States has expanded thanks to fracking.

The biggest problem we have with TGP is that there are a lot of new builds on order and historically ocean shippers get into financial trouble when they over commit to purchase of new ships.  This is not a problem now as the global economies have been strengthening, but in a recessionary time too many new builds on order can cause severe financial stress for a company.

Note that this is the 2nd LNG shipper in the portfolio as the GasLog Partners 8.20% fixed-to-floating perpetual preferred (GLOP-B) is in the portfolio as well.  Presently we have no real problem with this over exposure, but it is a situation that needs to be monitored.

Readers should be aware that personally we are much more conservative than this portfolio represents, although we do own the Spark Energy fixed-to-floating issue contained in this model.

With this purchase the model is 53% invested.  We will continue to search for a higher yield baby bond to add to the portfolio.

If You Liked Them at $27 You Should Love Them at $25

As we continue to work on this new website we are continually seeing charts of perpetual preferreds that show losses of $2-$3/shares since November/December. These are generally modest coupon issues – meaning that even if they are unrated they are likely decent quality.

Our mind always asks ourselves “how many years worth of dividends will it take to recoup lost capital?”.

Investors should plan for losses maybe equal to what have already occurred before 2018 is over  (of course who knows for absolute certainty).

My brother, who invests in a lot of preferred stocks also, and I talked in the last year or so about how we would be more than happy with a solid 7% yield–of course now that we can get a nice 7% we don’t want it as the pain of capital losses will make it unbearable.

This is the situation investors are now in. We need to be purchasing shorter maturity issues to hold for a while, but at some point in time an investor will want to lock in the nice 7, 8 or 9%. When will that time be? No one knows but it isn’t yet, but maybe it is in 6 months or a year. All we can do is wait and see.

It is very possible the issues below will all be trading at $20-$22/share before the year is over.

Here is a sample of charts where the current yields are .4 to .6% better than they were just 3 short months ago.

Silliness in Markets Continues

Silliness is the best way to describe the reaction of the stock markets to any news out there on interest rates.  Nothing at all has been said or written that changes one damn thing that we didn’t already know.

When we left the office for 90 minutes yesterday the DJIA was up around 200 point while the 10 year treasury was in the 2.93-2.94% and I would describe markets as quiet.  When we came back near market close the DJIA had fallen 400 points from the high and interest rates had fallen as well.  All on the release of Fed minutes from last month–what a damned joke.

Now as long time readers know silly movements like this don’t change anything we do–we can’t change on a dime–and won’t.  We are looking for short/medium maturity securities—period!  We aren’t traders–we don’t have the time to hang around watching for wiggles in markets–and if we did have time we wouldn’t do it–our mind is a more buy and hold–not trading.  Kudos to those that can grab an extra quarter here and there by flipping income issues.

Yesterday when we mentioned we bought some Atlas Financial Holdings 6.625% baby bonds we neglected to mention that we purchased some shares for our personal accounts–anyway we did.

We hope to add 1 issue today in the High Yield Model--maybe even 2.  We will write on these tonight.

Website – In Testing Stages


Currently working on


Most data entered–now proofreading and adding missed securities.

We are now linking pages from listings to detail pages.  Massive job.

To Do

Add more search criteria to security search page

This website is in a testing phase. Additionally there is a continuation of database loading occurring–needless to say loading data into a database is a massive project.

Also we continue to tweak items such as font sizes, search attributes and page layouts–from our experience none of these items will EVER be complete. It is our hope to present information in a manner that is most pleasing to the most number of users which means that as feedback is received changes will be made.

In the past we have not ever charged for our website access and for the time being that will still be the case, but at some point we will move to a modest charge. Building and maintaining websites with information that is useful is seldom free of cost. In our previous website we invested fairly substantial resources, primarily in professional services, to launch and operate the site. Since our last website it has become more and more difficult to secure data that is reliable and free (such as the recent shutdown of the Yahoo quote API) and while Google data remains free it is not a complete database of information and we would not be surprised if that free resource goes away in the months ahead.

It is our hope to have the site up and fully operational sometime during the month of February/March, 2018.

Feel free to leave any comments below if you would like.

New Purchases in Medium Duration Income Portfolio

Today we made 2 new purchases in the Medium Duration Income Portfolio. These purchases bring the model portfolio to about 76% invested. Our original target was to get to 90% by March 1st, but we are going to pause. As we look at share price losses occurring through income markets it seems silly to go further — for now.

Today we added the 7.35% Cowen Sr Notes (NASDAQ:COWNZ) which was issued in December. Of course we had to pay $25.42 because of the relatively high coupon. This is the longest dated maturity (2027) we have purchased in this portfolio. Honestly we are shooting for most in the 2021-2022 area which will minimize the volatility–the Cowen issue could exhibit quite alot of movement because it is 9 years until maturity.

Additionally we added the more modest coupon of the Atlas Financial Holdings 6.625% Notes (NASDAQ:AFHBL) which mature in 2022. We paid $25.45 for the shares. We were quite surprised when doing our due diligence on AFH to find this is a nicely profitable, but small, insurance company. AFH specializes in insurance for small commercial vehicles–taxis, buses etc. This particular issue of 1,000,000 shares (bonds) is all of the debt the company has outstanding which leaves the company in a fairly stable financial condition. The common shares trade in the $18/share area, but unfortunately no dividend is paid on the common. Just the same we believe this to be one of the best short maturity issues available at this time.

Now that this portfolio is 76% invested we will get the dividend table laid out on the portfolio page and see how we look in terms of current yields etc and distribution timing (we wish they were laid out evenly month to month, but this was not a factor for choosing and issue).  Dividends and interest will begin to roll into the portfolio in March–with luck (and a little skill) we will see if we can get into the black as we are already down $250 (2/10ths of 1%) in February and we fully anticipate a difficult year for income investors of any sort.

1347 Property Insurance Holdings Sells a New Preferred

Newer, small property and casualty insurance company 1347 Property Insurance Holdings (NASDAQ:PIH) has sold a issue of preferred stock with a 8% coupon.

The new issue has a 5 year optional redemption period starting in 2023 and terms are the normal terms EXCEPT the issue is cumulative which is unusual for an insurance company as most insurance companies are issuing non cumulative shares so they can be counted as tier 1 capital.

1347 does business around the gulf coast and primarily in Louisiana, Texas and Florida. Obviously this is a lucrative market when there are few storms around–of course a great business can turn into a disaster pretty quickly and this little company specializes in homeowners insurance, wind/hail insurance and manufactured home insurance–all areas that can be dicey in the markets they serve. They have 50,000 policies in effect.

Make sure to do plenty of due diligence on this one prior to purchase.

Details of the issue are here.

Shares start trading on the OTC Grey market today under the temporary ticker PPNSP.

Sotherly Hotels Baby Bond Purchase

Last week when we wrote about the new Sotherly Hotels new 7.25% baby bonds being issued with a 3 year maturity we stated we planned to purchase shares as it is not often you get a decent issue with such a short maturity date.

We did purchase 200 shares on Friday at $25.55.  We had an order in for 500 shares at $25-$25.10, but with little volume trading we moved (2) 100 share orders up to $25.55 to see if there were actually shares available–there were a few and we filled the 2 orders.  We did not re-enter orders for another 300 as we thought they might be available today at a better price.

Today shares are trading at $25.70–around 4 or 5,000 shares this far.  Honestly we don’t think these will be trading much cheaper in the days ahead–the issue is too good–underpriced.

Note that the issue has an optional redemption period in 1 year so they could be redeemed at that time–thus it has a immediate call risk–BUT the early call would be at 101% plus accrued interest so at this moment the call risk is 45 cents.  This means the yield to worst would be in the 5.5% area if early called.

We will lay back for a few days and see if we can garner a better price, although as mentioned above we don’t think it will get too much better.

Monday Morning Kickoff (on Tuesday)

Last week was a bit of a quieter week that previous weeks with equity prices moves somewhat less violently and interest rates moving above 2.90% but were unable to close the week at the high, instead closing in the 2.88% area. Part of the reduction in pressure on the rates may have been that the FED was a net purchaser of assets by $14 billion and for the month of February. This means that the plan of reducing the balance sheet by $20 billion a month is off just a bit so far–like $35 billion for the month as the month was a net $15 increase in the first 2 weeks. We will just have to wait and see what transpires in the weeks ahead.

For the shortened week ahead there is no really important economic data to be released. On Wednesday we have the Purchasing Manager Index (PMI) being released and the Leading Indicators on Thursday and we would be shocked if anyone attached much immediate importance to these items.

Even as interest rates stabilized, more or less, preferreds and baby bonds were off 3 cents but the number of issues trading under $25/share actually was at 212 versus 223 the week before. We use these numbers only to highly any large moves in shares – more minor moves simply show that averages are just that averages.

There was just 1 new issue which began trading last and that was the Sotherly Hotels 7.25% baby bond (NASDAQ:SOHOK) which traded a measly 652 shares on Friday, of which 200 were shares we bought (more on that purchase under a separate story). Until we see some trading tomorrow (Tuesday) we are not sure of what to make of this issue, but we highly suspect that the issue is mispriced and the supply/demand will keep the price high. Really a decent baby bond with a 3 year maturity and a 101% early redemption premium should have priced in the low to mid 6’s–oh well we shall see.

This week we will be looking for a purchase in each of the 2 models portfolios. In the High Yield Model we will be considering a mortgage REIT preferred–which one we don’t know and while we will have to buy a perpetual we hope that the reward will help compensate for the risk.

We will also look for a purchase in the Short/Medium Duration Income Portfolio after adding a couple issues last week.

Stock futures are off a bit tonight–totally meaningless with the multi hundred point swings we are likely to see all through the coming week.  The 10 year treasury is trading about 1 basis point above last weeks close at 2.89%.  Key for this week will be seeing if the 10 year trades firmly above 2.90% and closes in the 2.93-2.95% are which signals we are going to stay above 2.90% with the next move set to be 3%.

We Have Added a Short/Medium Maturity Income Issues Page

We have added a page which we call the Short/Medium Maturity Income Issues page. This is an important page to us because this is where we spend our time. It is where we invest–for the most part.

This page includes term preferreds and baby bonds maturing within a 10 year time frame. The closer the maturity date the less volatility the issue should exhibit. It should be noted that companies with financial issues, such as the REIT RAIT Financial Trust (NYSE:RAS) the baby bonds will trade based on the financial fortunes of the company.

The majority of what we own personally are issues that are contained on this page.


BDC Newtek Business Services Prices Baby Bond

Newtek Business Services (NASDAQ:NEWT), a BDC (business development company) has priced a new baby bond issue with a coupon of 6.25%.

The 2 million notes will have a maturity date on 3/1/2023 with an early call available starting 3/1/2020.

At this time we have not had time to review the issue in full so we don’t know if we will be a buyer.  In general the coupon is a tad bit meager for us.

Further details are here.

We note that the company will be partially or fully calling the 7% notes outstanding (NASDAQ:NEWTL).  These notes have been callable since 4/2017 and mature in 2021.

Sotherly Hotels Baby Bonds to Trade Today

The new 7.25% baby bonds of lodging REIT Sotherly Hotels have been loaded into the brokerages quote system so we expect they will begin to trade today.

Note that there is a chance that some online systems may not recognize the ticker (SOHOK) today and you have to wait until Monday.

Our intention is to buy for models as well as personal accounts.  The issue has a 3 year maturity and this short maturity date and reasonably good 7.25% coupon makes this one a strong buy for us.


Adding a New Issue to the Medium Duration Income Portfolio

We have added a new issue to the Medium Duration Income Portfolio.

We added a full position of Saratoga Investment (NYSE:SAR) 6.75% notes due 2023.  Of course building a portfolio at this time one ends up having to pay over $25 for the shares, but given the parameters of this portfolio we are better off making timely investments instead of waiting for a better price, which may or may not ever come.

These notes (NYSE:SAB) have a early call date of 12/21/2019 with maturity on 12/30/2023

We chose this note because a quick review of SAR shows that the majority of the loans they make are senior liens and have floating rate interest rates (84% are floating rate) attached to them.  The company has had fairly good financials in the last year or two.

With this purchase we are just over 50% invested, but with the soon to trade Sotherly Hotels baby bond (at least we hope it trades soon) we will be 60% invested in this model.

Interest Rates Back Below 2.90%

After breaching the 2.90% ceiling yesterday and trading up to 2.92% the 10 year treasury is trading at 2.88%.  Kind of a surprise, but just wait–it will change.

Utilities and REITs are up a tiny amount, while preferreds and baby bonds are treading water–guess that is better than lower, but we are relatively convinced (in our minds) that rates will move higher any second.  As we have conveyed before we don’t believe it matters at all what the FED does as the runoff of balance sheet assets will put a floor under the 10 year treasury.

We are taking the time today to identify a purchase for the Medium Duration Model Portfolio–maybe even 2 purchases.  We will post these before midnight (we do most of our work in the evening).

We are impatiently waiting for the new Sotherly Baby Bonds (NASDAQ:SOHOK) to start trading–should be anytime now, but we are not showing it on Fidelity or eTrade at this time.

A Rising Tide Lifts All Boats

Folks that publish on line are always just an article or two away from being made to look like a fool.

I made my first common stock investment in 1971–I wasn’t old enough to even sign the legal papers at the brokerage firm-had to have mom do it-she hadn’t owned a stock in her life.  It was a big purchase $50 (I thought $50 bucks was big back then).

I have read and studied on a non stop basis since that time–that is 47 years ago.

I learned quite a few years ago that I wasn’t a great investor when it came to common stocks-lots of buying high and selling low–a common issue with most individual investors.

12 years ago we started to dabble in income securities–primarily baby bonds and preferred stocks.  We liked them.  At that time it was not difficult to garner a solid 8% or so with little risk to capital.  Why would I buy common stocks when I could get 8% on a preferred or baby bond?  Sure the SP500 had an average 9.8% return over the last 100 years, but we would be absolutely thrilled with a 8% return year end and year out.

With that we quit buying common stocks–sure once in a while we lose our mind and buy something, but it isn’t very often.

In 2008 we wrote our first article on Seeking Alpha.  This was 2 years after we started publishing the 1st “Yield Hunter” website in 2006.  Talk about a crude site–that was before Google Docs and other tools were available.

Somewhere around 2009 or 2010 via email Brad Thomas and I had some communication and shortly thereafter we had a few phone conversations.  To make a long story short he wanted to partner on Seeking Alpha and other places.  He had been blown out of the real estate business during the recession and I think that he was looking for a new career.  I had a very active real estate appraisal business and I had no intention of trying to start a new career (in particular at my age–56 then).  My intention of running my little website was to learn and help other newbies learn.  There was no way that I was going to try to pass myself off as an expert–I was learning from lots of folks about income investing–after all these years I know quite a bit-BUT THE LEARNING FROM OTHERS NEVER STOPS!

A Rising tide lifts all boats.  For quite a few years REITs went up and up.  If you owned a REIT–any REIT, you made money.  If you wrote about REITs you were a hero.  Readers bowed to you at the alter of Seeking Alpha.  You launched lots of subscription websites with costs of up to $200/month.  You wrote for Forbes, you announced yourself as a publisher and share holder in themaven and continually attacked those with differing opinions.

Most of all you determined that everyone else was stupid and know nothings.  Markets didn’t understand REITs, forget that those you called a SWAN were now down 20, 30 or 50% and you refused to acknowledge that ‘the market’ knew anything.

Arrogance of publishers is deadly–IF WE EVER ACT LIKE WE KNOW IT ALL PLEASE LET US KNOW OTHERWISE.  We don’t!! We plan to learn all we can from readers, reader comments and income security forums all around the web.  Almost 65 and still learning.

I’m a caring guy and I feel sorry for Brad Thomas, he doesn’t ‘get it’.  We hope we never act like him.  We hope he realizes that investing isn’t all about being a salesman-we hope he reforms his ways.

We Personally Own These Monthly Payers

We wanted to take a minute to review some of our personal holdings that we have been highly satisfied with and most of which have been owned for years.

We are/have been high on the Gladstone Companies term preferred stocks which they have been issuing for 10 or 15 years.  They have always performed exactly as intended.

This doesn’t mean that we are positive on the individual Gladstone common shares, but we only have to be ‘so-so’ on the individual issues to own the term preferreds.

Here are some we own and may go to overweight positions, in particular if they sell much lower.


Gladstone Capital 6% 2024 Term Preferred (NASDAQ:GLADN).

Gladstone Capital is a BDC and as such is covered by the leverage rules for senior securities, which includes preferred stock which means they must have 200% asset coverage ratio.  The company has been around since 2001 and recent financials have been acceptable–not great–not terrible.  Mandatory redemption in 2024.  We bought this on the OTC Grey market when issued in 2017.

Gladstone Investment 6.25% 2023 Term Preferred (NASDAQ:GAINM).

Gladstone Investment is a BDC and earnings recently have been better than average for the company.  They have $566 million in investments.  Mandatory redemption in 2023.

Gladstone Land 6.375% 2021 Term Preferred (NASDAQ:LANDP)

Gladstone Land is a farmland REIT (1 of 2 farmland REITs).  The company has performed ‘ok’ in a tough business right now as any farming related land company has had to navigate low commodity prices–thus low rents.  Gladstone Land concentrates on owning land for fruits and vegetables instead of corn and soybeans (like Farmland Partners) and thus has not had quite as tough a time as FPI.

Being a REIT there is NO leverage rule that applies, thus the issue may contain more risk.

Gladstone Investment 6.75% 2021 Term Preferred (NASDAQ:GAINO)

Same as the above Gladstone Investment.  Note that the shares are now redemption eligible as they became redeemable 12/31/2017.

For us owning these securities is simply a way to receive a decent (not huge) dividend while having a relative certainty of return of capital in the not distant future.


CPI Runs Hotter Than Expectations

As mentioned yesterday the CPI release this morning could rile the markets a bit and that is the case as the number came in a bit hotter than consensus.

The CPI came in at up 2.1% which actually is just in the upper end of the consensus range, but above the overall consensus of 2%.  Certainly this is above expectations, but honestly it isn’t a real big deal.  The big deal is just in the direction–not the number itself.  In the end it is not what we think but instead is how the markets react.

The DJIA implied opening was around up 150 points, but after the release of the number the implied open was down 300–a 450 point swing.  Cooler heads are now prevailing and the loss has moderated.

The 10 year treasury was trading around 2.82% prior to the number release, but is now trading around 2.88%–below the short term upper band of 2.90%.  We will watch this during the day to see if we are going to breach the 2.90% on a closing basis today.

It is likely we will have a bit of downward pressure on income securities today but we will not change any positions, because we try to simply be correctly positioned (correctly positioned is defined as understanding securities we own and the reaction of prices to higher interest rates and accept the level of risk inherent in particular positions).