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Just Collecting Dividends and Interest

The last 2 weeks I have done very little as to buying and selling in our portfolios–although I continue to have some good til cancelled ‘buy’ orders in place, but no one has ‘given’ me shares recently, of course my offer is a wholesale price while sellers want retail.

I believe the last item I purchased was a 5.6% 1 year callable CD that JPMorgan was offering–now that rate has gone away and I see 5.50% available on Fido and 5.55% on eTrade. I’ll keep watching since almost every month there are maturities of treasuries and CDs, but I need to continue to scrutinize short dated maturity baby bonds from BDCs and that seems to be the best way to balance my CDs with high yield.

Just sitting back and collecting dividends and interest is most certainly a low stress way of investing – this is what we could only dream of a few years ago. I am certain that many investors out there are locking down 1 year, 2 year and 5 year rates and simply are content to watch the money come in—but we all know there is ‘reinvestment risk’ when those instruments mature–so the question is locking down 5% now for a few years in a CD versus taking more risk in an 8% BDC short maturity baby bond. Of course there is no right or wrong answer–everyone of us has needs and everyone is different.

So I see that Enbridge announced a giant acquisition of gas utilities from Dominion Energy. This may motivate me to look at the securities that Enbridge has outstanding (including their common shares)–maybe there is decent potential.

Today we have the ‘beige book’ being released at 1 pm (central)–we could well see some fireworks from this release.

Interest rates have popped back up and are at 4.25% area (10 year treasury)– we will see if this moves to challenge recent highs in the 4.36% area–a move above this level will open up potential moves higher.

Headlines of Interest

Below are press releases from companys with preferred stock or baby bonds outstanding – or just of general interest.

Now that earnings season is done I expect news to be very slow. Definitely a slow day again today.

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Enstar Announces Adverse Development Cover Agreement with AIG

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UMH PROPERTIES, INC. 2023 OPERATIONS UPDATE

View Press Release

BXP Declares Regular Quarterly Dividend

View Press Release

SITE Centers Declares Third Quarter 2023 Class A Preferred Share Dividend

Oil Prices Popping Hard

West Texas Intermediate is jumping much higher this morning as Saudi Arabia announced an extended production cut through at least the end of 2023.

While I don’t normally watch oil prices too closely a jump to over $86/barrel gets my attention. If prices stay this high–or higher it will feed through the inflation numbers at some point in time and of course we will see it at the gas pump much quicker. No doubt high prices at the pump feed through to consumer confidence fairly quickly.

Let’s see if these spikes continue – of course we would welcome a little economic slowdown, but don’t need prices at the pump to be the cause.

Monday Morning Kickoff (On Tuesday)

So let’s get this holiday shortened week going.

The S&P500 rose by about 2.5% last week – trading in a range of 4415 to 4541 – closing near the high at 4416.

Interest rates headed a bit lower last week – closing at 4.17% (the 10 year treasury. The trading range was 4.06% to 4.24%. On the previous Friday the 10 year treasury closed at 4.24%. Economic data would imply that we may see a slight softening in the economy–but as with any piece of data a singular piece of data is not indicative of anything.

This week we have mostly minor economic data being released, but we do have the release of the ‘beige book‘ on Wednesday. The beige book will break down economic data in each Federal Reserve district–this has caused market movement in the past and we could see some fireworks–we’ll see. Thursday we have a gaggle of Fed yakkers – although the yakkers haven’t had much affect on market movements lately.

The Federal Reserve balance sheet moved $18 billion lower last week. Balance sheet assets are now at $8.12 trillion – down from an all time high that is just shy of $9 trillion which was around 16 months ago. Obviously this is a fair move lower and while we will never see the balance sheet back toward zero this trillion dollar drop will give the Fed the ability to move to quantitative easing when/if it is necessary.

Finally after 2 weeks of weaker prices we got a bounce in $25/share last week with the average price moving 26 cents higher. Investment grade issues moved 20 cents higher, banks moved 22 cents higher while mREIT preferreds moved just 6 cents higher.

The new 8% baby bond issue from NewtekOne (NEWT) is trading now and closed on Friday at $24.69 for a current yield of 8.1%.

Is a New All Time High Just Around the Corner?

Not that it matters all that much to me that equities would move to all time highs, but equities can (and do) drag preferreds up and down in sympathy when markets move sharply. Right now the S&P500 is just 2% off a 52 week high and around 5% off an all time high–extraordinary performance in a time of sharply higher interest rates. What is my guess on the odds of moving to all time highs? New highs will be seen in the 1st or 2nd quarter of next year–1 simple premise–money, money, money! We have all seen the charts before – money market fund balance charts (below). Higher interest rates have moved money to MMFs – peaking interest rates will start the move back to equities and it will take only a tiny amount of movement from income securities (including MMFs) to move equities to all time highs.

What are the odds I am correct in this ‘quess’? ZERO. SO MANY factors at play here and my guess is worth exactly zero.

Equities are up this morning as we await the August employment report and just a modest 170,000 new jobs are forecast with the unemployment rate forecast to remain at 3.5%. Of course this is a ‘bad news’ is ‘good news’ story–the lower the employment number the more favorable will be the reaction (at least to a degree). Interest rates as represented by the 10 year treasury are at 4.10%. It should be an interesting day.

I had a gaggle of treasuries mature yesterday so more dry powder and more decisions to be made. Do I buy more CDs? I mentioned earlier this week that I had bought some JPMorgan 5.6% 1 year, callable CDs–I am loving the 5.6%, but am open to reinvestment risk in 6 months if called–we’ll see.

NewtekOne Sells a New Baby Bond

This is a catch up from last week when I was out of the office. I am sure that folks noted the new issues in reader alerts last week.

NewtekOne (NEWT) has sold a new issue of baby bonds with a coupon of 8%. The issue has a maturity date in 2028.

The issue will trade under ticker NEWTI (caution this is a reused ticker which may cause some confusion).

I do not see any trading yet on eTrade or Fido–should be anytime now.

The pricing term sheet is here.

Remember that NewtekOne was a business development company (BDC) until a vote of shareholders in June, 2022 approved the revocation of BDC status and a switch to a C Corp.

Headlines of Interest

Below are press releases from companys with preferred stock or baby bonds outstanding – or just of general interest.

Now that earnings season is done I expect news to be very slow. Definitely a slow day today.

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The 30-Year Fixed-Rate Mortgage Decreases

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NewtekOne, Inc. Completes Offering of $40 Million of 8.00% Fixed Rate Senior Notes due 2028

View Press Release

Hercules Receives a BBB+ Reaffirmed Investment Grade Corporate Rating from Kroll Bond Rating Agency, Inc.

Waiting on PCE

Every one is awaiting the release of the personal consumption expenditure (PCE) report–markets must be anticipating good news as the S&P500 is up 1/4% and the 10 year treasury is trading at 4.09%.

Of course we have the weekly initial jobless claims which has become more and more important as we track employment, which I believe is 1 of a handful of ‘most important’ indicators for the FED and the FOMC committee in interest rate decisions.

Personally I have had 3 good til cancelled buy orders execute in the last week–plus I have purchased a 5.6% 1 year CD (which of course is callable). None of the baby bond purchases were of any magnitude – actually they were all in the same security at lower and lower prices. I intend to get a ‘blurb’ out today or tomorrow outlining those small purchases and the logic behind them.

I continue to have multiple good til cancelled buy orders out there, but they will need the help of ‘nervous nellies’ selling to me at what I consider a bargain price. I have not sold anything recently but once again am considering lightening up on a few small bankers now that they have popped up from the recently sell-off–I have couple with 10% gains (capital gains plus 1 or 2 dividends) and may sell part of those positions–we’ll see.

GDPNow Shows Blowout Growth

Have you noticed? I suspect most our readers are well aware that the Atlanta Fed model for GDP on 8/24/2023 shows growth predicted at 5.9% annually. If this is anywhere close we are going to have a lot of trouble getting interest rates much (if any) lower. Personally I think this is balony (I didn’t try to scrutinize the underlying data).

This morning we had the 2nd reading of GDP for the 2nd quarter and it was lowered. Something is wrong somewhere here – somebody’s model is broken I think.

Interest rates are dead flat this morning while equities are trying to decide where to go next – 1st way up and then a tumble, now the S&P500 is up 1/4%–of course where we end up nobody knows.