Innovative Income Investor | Innovative Income Investor

A Day Late and a Dollar Short

Almost everywhere I turn I see folks saying it is time to get into preferred stocks.

Now even Brad Thomas is pushing preferred shares—I guess better late than never. This is not on Seeking Alpha but is on the Wide Moat Research site, which as I understand Brad no longer owns, but is owned by flea bag publisher Marketwise. For entertainment value the article is here.

At a minimum these drum beats for owning preferreds are giving all us holders continuing nice gains.

Weekly Kickoff

Well another big gain on the week for the S&P500 last week–with the index moving 4% higher. One has to wonder if we see the index setback this week in a ‘sell the news’ week on the back of a highly anticipated fed funds interest rate cut on Wednesday.

The 10 year treasury continued to drift lower closing the week at 3.65% which was 11 basis points lower than the close the previous week. The last time we saw the 10 year yield this low was the week ending 5/12/2023. One wonders how the yield will react to this weeks interest rate cut–obviously this is a very anticipated cut at some level (25 or 50 basis points?). Of course there is plenty of more minor economic news this week to go with the FOMC meeting, but most of it will be of minor concern as we got CPI, PPI, and employment in the last 10 days and those are the major market movers.

The Fed balance sheet assets position moved $3 billion higher last week–normal as we have occasional small reversals of the run-off–overall the trend lower continues.

Last week the average $25/share preferred and baby bond moved sharply higher once again last week. The average share was up 30 cents–a giant move as these things go. Investment grade issues moved 38 cents higher, banks were up 30 cents, CEF issues were up 43 cents, mREIT issues were up 19 cents with shippers down 1 penny. Average prices are now at the highest level since August, 2022.

Last week we had one new income issue price with the pricing of a new Great Elm Capital (GECC) baby bond. The issue prices at 8.125%.

A Stellar Week–a Stellar Year

I am certain most of you have gains beyond mine being the ultra conservative investor that I am—but certainly the gains have been better than my expectations. The last week alone has been super profitable.

As most of you have noticed we started with some of the higher coupon preferreds moving higher way back 15-18 months ago and now bargain hunters are moving down the ladder to invest in the more low-midrange coupons (5.5% to 7%) helping to drive those share prices higher. 1 issue in which I have an overweight position is the RiverNorth Opportunities Fund 6% perpetual preferred (RIV-A). Today it is trading strongly higher–44 cents on higher than average volume.

Now those that are worried the move higher in baby bonds and preferred stocks has no further room to run after 18 months just remember that these trends tend to always run longer than one believes they will. Additionally, we are running into a time frame where ‘reinvestment risk’ is becoming a factor–how do you improve your yield? My bigger worry is that common shares move lower and drag the income issues with them–but no one can predict tomorrow let alone next week and next year so I won’t lay awake worrying about what I can’t control.

BDC Great Elm Capital Prices New Baby Bond

Smallish business development company (BDC) has announced pricing for a new issue of baby bonds. The new issue prices at 8.125% and proceeds will be used to call the 6.75% baby bonds (GECCM) on 10/12/2024—these notes have a maturity on 1/31/2025.

The pricing term sheet is here.

Headlines of Interest

Below are press releases from company’s with preferred stock and/or baby bonds outstanding–or just news of general interest. News will be rather slow until the the end of the quarter and start of earnings season in early October.