Innovative Income Investor | Innovative Income Investor

Weekly Kickoff

So we are in a seasonally weak time of year for stocks and most certainly we saw that last week with the S&P500 off rather sharply. The index closed the week at 5408 which was down from a close the previous Friday of 5648–a drop of 4.2% in a holiday shortened week. Seasonally this time of year can be wild–many of use can remember really weak September/October time frames–in particular 1987. It is strange that I can remember where I was on ‘Black Monday’ so it was obviously a monumental day for stocks–don’t want to see that again, but who knows.

The 10 year treasury closed the week at 3.71% which was down a sharp 20 basis points from the 3.91% close the previous Friday. Economic news has been critically scrutinized recently in the lead up to next weeks FOMC meeting. Obviously everyone is looking forward to a Fed funds rate cut–just a matter of whether it is 1/4% or 1/2%. Does it really matter much to me? No–I will not do one thing different no matter the size of the cut–I have moved my allocations to preferreds and baby bonds up–reducing the size of treasury’s , CDs and money market holdings. This week we have more economic news that will move markets this week in the consumer price (CPI) and producer price (PPI) indexes.

The Federal Reserve balance sheet assets fell by $11 billion to now stand at $7.11 trillion. We have had the Fed let almost exactly $1 trillion in assets run off the balance sheet in the last year–just another 7 years and we will be back to zero which of course will never happen.

Last week, as might be expected, the average $25/share preferred and baby bond rose by 13 cents. Investment grade issues rose 20 cents, banking issues rose 13 cents, mREITs rose 5 cents and shipping issues rose 21 cents.

A Buy This Morning and a Weekend Project

This morning I made a buy–of course it was something I already own and am very comfortable holding.

I bought shares in the UMH 6.375% perpetual preferred (UMH-D) at a price of $23.52. In spite of UMH operating manufactured house sites (parks) I think there is a fair amount of safety in that business. The company shows little, if any, net income, but their funds from operations (FFO) is quite strong. I note that the UMH-D issue is being sold in an ‘at the money’ offering and there are now 11.3 million shares outstanding as of 6/30/2024. The current yield of about 6.8% compliments my 7% target decently.

My weekend project is to go through my accounts and determine if I have adequate diversification. As I shift further over to preferreds and baby bonds I want to make sure I get as many sectors represented as possible. Thus far I have mainly added to current positions–makes sense since I am comfortable with my holdings, but this also raises my risks–numerous issues are at full or even overweight positions–I want to avoid further concentration.

Headlines of Interest

Below are press releases from company’s with preferred stock and baby bonds outstanding–or just news of general interest. News will be slow until early October when the 3rd quarter earnings start to hit.

Golar announces pricing of USD 300 million unsecured bond issue

Mortgage Rates Remained Flat This Week

NewtekOne, Inc. Reconfirms its 2024 Annual EPS Forecast in a Range of $1.85 to $2.05 per Basic and Diluted Common Share

ConnectOne Bancorp, Inc. to Expand on Long Island Through Merger with The First of Long Island Corporation

Global Medical REIT Inc. Board Declares 2024 Third Quarter Common and Preferred Dividends

Interstate Power and Light Company Prices Debt Offering

Nickels and Dimes Add Up

Nickel and dime gains add up to real money over time and that is what we are seeing. I think the time for giant sized future capital gains was in the past and now we just have to stack up the coins as the slowly come in from dividends and interest payments. I am pretty much right on with my 7% target on yield–in the last year I have beat that pretty well with good capital gains, but now my focus is where do I want to lock in for the next year.

The 10 year treasury yield is drifting lower and lower and now is at 3.76% (The 2 year treasury is trading at 3.76% as well.)—pretty much reflecting employment numbers and generally softer economic conditions.

With the soft ADP jobs report today at only 99,000 new jobs it will be interesting to see the ‘official’ government report tomorrow—I am no longer curious as to whether there will be a rate cut in a couple weeks–there simply will be for sure–1/4 or 1/2% won’t matter to me. I am sure as soon as the rate cuts start we will have heavy talk about a recession coming–the same recession that has been coming for years (in some minds)–for sure there will be a recession in the future, just a question of when. GDP Now from the Atlanta Fed is showing 2.1% growth in GDP for the 3rd quarter–doesn’t sound like a recession soon, but who knows—life goes on.

Poorly Run CEF RiverNorth Capital and Income Calls Term Preferred

Closed end fund RiverNorth Capital and Income has announced the redemption of their 5.875% term preferred (RMPL- or RMPL/P or RMPL.PR) which has a mandatory redemption date of 10/31/2024.

RiverNorth Capital and Income is an interval fund trading under the ticker RSF. The fund has had 3 names in their short histories which I outline on the term preferred page here. Their strategies changed numerous times in the last 7 years and returns since inception are around 4% annually.

RSF had a marginal asset coverage ratio of 222% on 12/31/2023 and I see now that it has increased to 235% as of 7/31/2024.

I believe that we will see a new preferred stock offering soon from RSF to pay for this redemption as the cost of the call will be over $41 million and this fund has total assets of just $116 million–at some point a fund is too small to be viable for the managers.