Author: Tim McPartland

Each time I post this we have more users–and more proof readers.

I have a Google sortable spreadsheet here (the instruction page) that contains $25/shares issues (baby bonds and preferreds). At this time it doesn’t include most convertibles or hybrid preferreds – BUT should contain 98% of traditional issues.

Certainly there are some issues that have been overlooked–looking over comments, now that I have more time I try to get the overlooked issues added in–if you see something that is missing please let me know below and I will check back and get them in.

Well overall last week was a quiet week with the S&P500 moving very little week over week and the 10 year treasury mirroring the stock markets.

The S&P500 moved higher by almost exactly 10 points last week closing the week at 4604. The index moved in a range of 4546 to 4609–it is seldom tha the index moves in a range of just over 1%–some indecision as where we go next.

The 10 year treasury got as low as 4.10% and as high as 4.30% before closing the week at 4.25%–up a measly 2 basis points from the close the previous Friday. Economic data from last week included monthly employment reports–from ADP and the government report. ADP showed weakness with 103,000 private payroll jobs (weaker than expected) created in November while the government report showed 199,000 new jobs created versus 190,000 expected. The unemployment rate fell to 3.7% from 3.9% (versus 3.9% expected).

For this week we have the important CPI and PPI reports (consumer prices and producer prices) as well as a FOMC meeting starting on Tuesday and wrapping up on Wednesday with an announcement at 1 p.m. (central) on policy changes and a 1:30 pm (central) press conference with Jay Powell.

The Federal Reserve balance sheet plunged by $59 billion as the Fed continues to run their quantitative tightening program at a runoff of $85 billion per month.

Last week $25/share preferreds and baby bonds, just like common shares, moved very little. The average share price fell by 8 cents/share. Investment grade issues fell 18 cents, bankers fell by 8 cents, mREIT preferreds rose by 12 cents and shippers were 2 cents lower—all in all a quiet week

Last week we had Midcap Financial Investment (MFIC) (the old Apollo Asset Investment) sell an issue of 8% baby bonds. MFIC is a BDC. Details are here.

So once again all eyes are on jobs numbers which will be released at 7:30 a.m.(central)–and these are the ‘official’ jobs numbers from the Bureau of Labor statistics (BLS). Forecasts are for 190,000 jobs being added–but apparently this includes around 40,000 folks going back to work after the auto strike–so 150,000 net new jobs. This would equal last month which was 150,000 (subject to revisions). The unemployment rate is forecast at 3.9%–flat from last month. Hourly wages are forecast at up 4% year over year–compared to 4.1% last month. Lots to look at in this report and we could be some items above forecast and some below forecast–but you can be certain than there is market moving potential here.

The 10 year treasury is trading at 4.18% this morning–jobs numbers have the potential to move this 10 basis points (up or down) and we can expect that after the release of the jobs number the yakking will be around when the Fed will cut rates. The equity market levels are built on the premise that rate cuts will come as early as March–with the S&P500 trading at 19 times forward earnings there is really little room for error. While I don’t buy much in the way of common stocks I never want to see markets hit hard to the downside–everyone is hurt, including income investors, when common shares are tumbling hard.

Yesterday I did make one purchase which I will write about separately today–sometimes a buy comes along which is unexpected. With my limited cash availability I bought a 1/2 position–more to come.

I continue to simply ‘roll-over’ our earnings in U-Haul Investors Club. Currently coupons on new issues are from 4.75% to 5%. These coupons are somewhat inferior to other available rates, but I continue to roll over repayments. I think it is time to get serious about making some transfers out to 1 of my brokerage accounts–when I can get an incremental 1-2% in investment grade baby bonds or preferreds (sock drawer issues) I have to start to make the move.

Ok–45 minutes now until the jobs numbers – let’s see if markets go crazy or handle whatever news we get calmly.

This must be jobs week – yesterday we had ADP jobs creation numbers which came in soft to forecast. Today we have the weekly 1st time unemployment claims–and also ‘continuing claims’ being released. Tomorrow we have November jobs creation, unemployment rates etc from the BLS. Not long ago these numbers were not given such heavy weight in investors minds–now that has changed as the Fed (Powell in particular) keeps calling out employment as a key indicator of how interest rates are affecting the economy. Equity futures are very quiet right now—virtually unchanged as has been the cases for weeks and weeks—we’ll see how long this trend continues.

I was irritated yesterday as Hennessy Advisors 4.875% jumped to $25 – up 60 cents from where I just sold most of my shares. I should have had a good-til-cancelled sell order in on the balance of my shares as I am a seller at $25. I will be out of the balance of my shares today if someone wants then so badly. Also goes to show one really can’t catch the lows nor the highs–in particular on thinly traded issues, but no use being greedy.

I am starting to focus some time on the BDC baby bonds–mainly because I don’t have any better ideas. With numerous issues available with 8% coupons (plus or minus a little) and relatively short maturity dates these issues kind of fill my needs. I own a Saratoga issue as well as the Capital Southwest issue, but we have issues from Gladstone Capital, Whitehorse Finance and now Midcap Financial all of which are in my wheelhouse. My biggest concern is that we will see lots more bankruptcys in the mid market companys as higher interest rates start to bite in 2024 via the floating rate loans that the BDCs make–but whether this comes to fruition who knows. I guess one simply has to stay diversified.

Well let’s get on to jobs, jobs, jobs!!