Thursday and Friday – Mostly Out of Office

We will be out of the office the majority of the time during Thursday and Friday, although we will be back in the evening to check out the markets.

Of course we will have our smart phone with which to keep an eye on all of the fun in the marketplace, but attempting to update the website with the smart phone is beyond our patience.

We will mention that we moved our good-til-cancelled sell order higher on the Global Partners 9.75% f-t-f preferred.   After vacillating whether the issue might be a quick flip in the $25.49 area we have watched the issue go higher to close at $25.64 Wednesday.  Our original Good til Cancelled order was at $25.75 so we cancelled and reestablished at $25.90–for now.  For now this has been a great issue which we truly have believed, since the date of issuance, was very mispriced–oh well.

Rush to Safety Keeps Rates Low

As the situation in Turkey keeps simmering global investors do the ‘rush to safety’ move once again sending the 10 year treasury down -4 basis point to around 2.85%.

As I glance at the Master List of $25 issues it appears that the safety play has probably moved share prices up by a few pennies–I know for sure it has had little to no impact on our personal holdings.

Obviously equity holders have been sellers today with the DJIA off 280 as I write–but of course this is nothing–we will worry when the DJIA falls 750-1000 points because at that point in time the evening news and mainstream media play it as a disaster.  Small players who have bought at high levels now sell at low levels and head for the cave in the backyard.  This is why the average retail investor earns 2.5% annually–instead of the much larger amount they brag about.

Remember that preferred stock and baby bond holders will not likely be hurt in a stock market tumble until we reach the point of pure panic and investors rush to toss the baby out with the bath water.

Purchased New Gladstone Investment Term Preferred

We have just purchased 500 shares of the new Gladstone Investment term preferred at $24.70–thanks to reader SPM we found out the issue is trading OTC Grey market already under ticker GLDZP.

Even though the coupon is meager at 6.375% this issue should trade up to the $25.25-$25.50 area in the month ahead based on the GAINM 6.25% issue which is trading around $25.20 right now.

We purchased through Fidelity–it was not posted yet on eTrade.

Gladstone Investment Prices New Term Preferred

As noted yesterday Gladstone Investment (NASDAQ:GAIN), a business development company has priced a new term preferred with a coupon of 6.375% with a mandatory redemption in 2025.

Additionally they have announced the calls on the 6.75% and 6.50% term preferred issues which are currently outstanding.

The new issue will be cumulative and pay monthly dividends–being a BDC the dividends will not be qualified.

The pricing term sheet can be found here.

We will be purchasing this new issue to replace the redeemed issues.

The new issue will trade on the OTC Grey market as soon as today under the ticker GLDZP.

 

Update on the 2014-2018 Short Medium Duration Income Portfolio

We have had a few questions on some older portfolios we maintain over at the DividendInvestor.com site.  We continue to maintain these models because they are important to us on a historical basis–proving of concept.

Here we review the 2014-2018 Short/Medium Duration Income Portfolio.  We will review the other portfolios on DividendInvestor.com in the next few days.

This model was set up to attain our typical 7% target and was originated in October 2014.  The idea was that there is no trading and it is composed of Term Preferreds and Baby Bonds with shorter dated maturities.  As you will see the model has been pretty much on target through October, 2017 and we should be near–just a bit short of target come October, 2018.  Of course as interest rates fell through the first couple of years we had redemptions that make a 7% target almost impossible without addition of some perpetual preferred which we are not using for this model.

The results have been 6.2%, 6.85% and 6.95%  for years ending 2015, 2016 an 2017.  For 2018 it looks like we should end around 6.5% as obviously the cash levels have been too high–much too high at around 18% cash.  Also the portfolio has the Gladstone Investment 6.75% Term Preferred (NASDAQ:GAINO) which will be called for redemption in a couple of days and thus our cash goes even higher.

The Portfolio can be seen here–bookmark the page if you want to watch it in the future as DividendInvestor.com has it pretty well buried.

BDC Gladstone Investment Sells New Term Preferred

Gladstone Investment (NASDAQ:GAIN) is selling a new term preferred. Details are yet to be determined, but it will have a mandatory redemption in 2025.

The proceeds will be used to redeem the 6.75% term preferred issue (NASDAQ:GAINO) and the 6.50% issue (NASDAQ:GAINN).

Preliminary info can be found here.

We own shares in both of the issues that are being redeemed, but fortunately they are trading with only a few pennies of premium in them so there will be few if, any losses, incurred on the call.

 

 

 

Trust Preferreds Added to “Master List”

Since there are only a dozen trust preferred issues remaining outstanding at this time we have added them to the ‘Master List’ which we published last week.

$25/Share Master List of Preferreds, Baby Bonds and Trust Preferreds (will open a spreadsheet in a new window and you may make a copy if you want).

For newer investors Trust Preferreds are preferreds issued by a trust which is created by the issuer. The trust purchases debentures from the forming corporation with funds the trust generates by selling preferred shares. The distribution to preferred shareholders is treated as interest – NOT dividends and thus is not a qualified distribution. The reason for this is because of the payment is simply a pass through from the company to the trust to the end shareholder.

Why would a company create a trust?  Because the interest they pay the trust is interest and thus tax deductible while dividends are not tax deductible.

Generally Trust Preferred shares should be safer than regular preferreds because the trust owns debentures which is higher in the capital stack than preferred shares this your distribution is safer.

Decision Time for Global Partners

As with any security purchase the selling decision is always more difficult than the buying decision.

The new Global Partners (NYSE:GLP) 9.75% fixed-to-floating rate units is the one we are dealing with now.  The issue began trading on the Big Board today after trading for a week or so on the OTC Grey market.

At this moment the shares (GLP-A) are trading around $25.42 and have been as high as $25.50.  We had bought a small position of 300 shares on the OTC market when they 1st traded and we paid $24.82.  This means we have a profit of around 60 cents a share now which is a reasonable profit for a hold of 7 business days.

Originally it was our intention to hold the shares as Global Partners has recently released solid quarterly results and we think that the 9.75% coupon is as good as it gets from a solid issuer, but we are so tempted to exit in the $25.50 area.  If we had originally planned to ‘flip’ we would have probably bought more than 300 shares.

All things considered I am going to put in a good-til-cancelled order to sell in the $25.75 area.  It may or may not hit that area in the next week or 10 days, but if it did we would be happy to sell and if it levels out in the $25.50 we are happy to hold for the juicy distribution.

 

Monday Morning Kickoff

We expect that the monetary crisis in Turkey will be the main item that will provide excitement in the markets this week – it doesn’t seem like any other fundamental piece of news can move this market much at all.

Last the DJIA traded in a range of 25,222 to 25,692 and closed the week almost 1% lower as the market focused on Turkey.  The 10 year treasury also focused on the same issue and this sent the current yield down into the 2.80’s.  The 10 year treasury opened the week at 2.96% and ended the week at 2.86%.

Last weeks economic news contained no major surprises with the most interesting item being real wages being flat month on month and down year over year.  Obviously with wages falling on an inflation adjusted basis it signals issues for consumption down the road–we best hope that this doesn’t continue.

For this week we have a bunch of economic reports and we don’t see a single one that is likely to be market moving.  Monday and Tuesday have nothing to speak of report wise, but Wednesday is loaded–with, Retail Sales the Empire State Index, Q2 Productivity, Industrial Production, Home Builders Index and Business Inventories.  Thursday we have Housing Starts and Building Permits and Friday we have Consumer Sentiment and Leading Economic Indicators.  This is quite a list but given the recent history of the marketplace nobody cares–until they do.  I think that we will see little reaction, but just the same we will review the data, because while no single data point is important taken as a whole they may have meaning.

The Fed balance sheet grew by $3 billion last week which is not a surprise given the $22 billion in run off the week before.

Last week we had 4 new income issues announced.  US Bancorp (NYSE:USB) announced a new perpetual preferred with a coupon of 5.50%.  Container owner CAI International (NYSE:CAI) priced a fixed-to-floating rate preferred issue at 8.50%, Prudential Financial (NYSE:PRU) sold a baby bond issue with a 5.625% coupon and lastly Ladenburg Thalmann (AMEX:LTS) sold baby bonds with a coupon of 7.25%.

In spite of lower interest rates last week we had the average $25 preferred fall in price by 5 cents and we had 164 issues trading at $25 or less compared to 157 the week before.

Medium Duration Fixed Income Portfolio Keeps on Trucking

Our model portfolio which we call the “Medium Duration Fixed Income Portfolio” just keeps trucking along as originally intended.

This portfolio has hardly been touched since it was originally composed on 2/8/2018 and that was the intention of the portfolio.  This portfolio is not intended to be ‘traded’, ‘flipped’ or be changed at all.  If an issue is redeemed (or called) of course the portfolio has to change as a new replacement issue is added.  Additionally if we saw obvious problems with a particular issuing company we would probably exit the position.

To date the portfolio has a gain of a bit more than 3%–which might seem meager, but we couldn’t book any dividends or interest to speak of until March as we had to wait after purchase a dividend/interest cycle to occur and we did not have the portfolio invest in full (or near full) until April.

One of our readers ‘Bea’ asked about the reality of the portfolio–they are simply ‘model’—BUT generally this is how we invest and we personally own 6 of the issues (out of 11) in our personal accounts.

Who is this portfolio intended for?  A somewhat conservative investor who was a respectable income stream without expectations of capital gains.  When we originally introduced similar portfolios they were meant to give a return to a conservative investor who no longer had the option of CD and Money Market income–obviously this portfolio is not as safe as CD’s and Money Markets.

The portfolio is about 93% invested and we have 1 item to add soon (we need to add a UHaul Investor Club portion).

Watch The Consumer Price Index Friday

Tomorrow monring at 7:30 am (central) we have the only real economic report that has a minor possibility of moving some markets and that is the CPI (Consumer Price Index).

Currently the consensus forecast for the month of July is for an increase in prices of .2% month over month or 2.3% year over year.

Today we had the producer price index come in flat–no increase, month over month–the core rate (stripping out food and energy) was at an increase of .3% for an increase of 2.8% year over year.

Markets have recently pretty much ignored both the PPI and CPI in terms of being market moving events–and likely that will continue–BUT a crazy number like plus .5% would get folks attention.  We don’t expect something crazy to happen, but if it does watch the 10 year treasury to breach 3%.

Of course any number over the expected .2% adds fuel to the fire for a Fed Funds rate hike in September, which we already believe is near cast in stone.

Ladenburg Thalmann to Sell More Baby Bonds

It’s funny I was just reviewing the recently released Ladenburg financial results and thinking they were much improved from the past (they broke even which is a vast improvement) and then the company announces a new issuance of baby bonds.

They will sell new baby bonds with a ticker of LTSK (subject to change) and will use the proceeds for general corporate purposes.

The preliminary prospectus can be found here.

Typical terms apply – interest is not a qualified distribution, quarterly interest payments, optional redemption period starting 9/30/2021 with maturity in 2028.

The company currently has 2 baby bonds outstanding–1 with a coupon of 6.5% and the other with a coupon of 7%.  Additionally they have a monthly paying 8% preferred issue outstanding (LTS-A).

$25 Master List Link–Corrected

Corrected Google Doc Instructions.

 

We have a link for copying a spreadsheet that we call the $25 Master List.

Here it is.

PLEASE NOTE–there are about 12 issues where the price works/doesn’t work–seldom can you get these quote folks to get their act together.

NOTE–If I remember right I may have an imbedded script in this spreadsheet – hopefully it won’t cause too many problems for users.

You should be able to clink on the link above and the spreadsheet will pop up–it is a google doc.  If you want a copy for yourself click–FILE–MAKE COPY, then give it your name.  I think most of the readers know how Google Docs works.

If you make a copy for your own use it will be a new spreadsheet and will NOT update as we make changes (for instance someone is working on putting links on the ticker symbols for issue details).  We suggest getting a new copy every few weeks to have the latest updates.

We will post a link on the ‘preferred stock’ page in the master menu for permanent reference.