Category: General Commentary

So I have cash in my pocket from bond and CD maturities and plan to make a buy in the next couple of days. I need to review portfolios to see where I have room to add to current positions–a number of my favorite securities are already at full–or above full positions and I have to resist adding to these in the interest of diversification. One of my largest positions is in the 6.50% XAI Floating Rate (XFLT-A) term preferred–I could just keep buying it, but am totally overweight and one has to resist getting carried away–‘stuff happens’ which can destroy values. I am also overweight on the RiverNorth Opportunities Fund 6% perpetual (RIV-A)–can’t buy more of this one. I will review the new issues for potential buys, but likely will end up buying a ‘high yield’ issue that is already in the portfolio.

Yesterday I redeployed some capital into 5.45% 3 month CDs–still ‘addicted’ to CDs. I am targeting a 60% weighting to preferreds and baby bonds so as CDs mature I reinvest some in CDs and then make modest purchases in the preferreds and baby bonds. This is a slow process–what’s the hurry?

The 10 year treasury is trading at 4.29% this morning–a few basis points higher from yesterday. Mainly rates are awaiting the release of the personal consumption expenditures (PCE) inflation numbers later this week–a giant sized 15 basis point move is possible–up or down, as the debate on rate cuts for this year continue. For a rate cut in September good inflation numbers need to start coming in NOW.

Yesterday we saw the new New York Mortgage Trust (NYMT) baby bond price at 9.125%. As of now we haven’t seen pricing on the new Dime Community Bancorp (DCOM) baby bonds announced yesterday. Additionally we have not seen any pricing on a new Sachem $1000 bond issue which was announced initially on 6/17–negotiating for coupon must be difficult.

Once again we got economic data yesterday they would seem to indicate the economy is slowing–NOT in a dramatic fashion, but pointing in the slowing direction. Jobless claims were slightly above forecast at 238,000–although below the previous week, BUT continuing claims were 1.824 million up 15,000 from the previous week. On the other hand until we hit 300,000 on a weekly basis there is no reason to think we are going to see a recession–near ‘goldilocks’ for now. The Atlanta Feds GDPNow is forecasting 2nd quarter GDP at 3%–certainly no recession in sight.

The 10 year treasury is trading at 4.23% this morning–next Friday we get the personal consumption expenditure index (PCE). This news has the potential of kicking the 10 year yield 10-15 basis points higher or lower. We have been stuck in the 4,21% to 4.29% all this week–I like it, but I would like 4.00% to 4.10% better–lower than that would certainly give preferreds and baby bonds a major kick higher. Let’s have some more capital gains on the high quality, low coupon issues!!

Did you notice last night in the ‘headlines of interest’ that insurer Athene Holdings LTD was upgraded by AM Best? Lots of good things to say about the company. Disclosure that I own the ATH-D 4.875% now trading at $18.65–a current yield of 6.53%. I have a capital gain of 10% on these shares and expect another 10% in the next 6 months. We’ll see.

Well we have the release of the S&P Flash services and manufacturing purchasing managers index, existing home sales and leading economic indicators being released in 90 minutes. We’ll see where they are pointing us economy wise.

The S&P500 closed at record highs on Tuesday before the holiday yesterday–and now equities are up relatively sharply this morning. Once again it appears that tech issues are leading the charge as NASDAQ is charging higher. The 10 year treasury yield is trading around 4.25% as it awaits some guidance (from economic news) on where to move next.

We have jobless claims in a hour–more important than it has historically been as folks focus on inflation numbers as well as employment as key to future rates. Then we have building permits and housing starts as well as the Philly Fed Survey released at the same time.

Over night we had the Swiss Central bank cut interest rates while Norway and Bank of England held steady. Any cuts in Europe add a bit of pressure on the Fed to cut, but honestly Jay Powell is going to hold firm for month or 3–more data is needed–always need more data..

Tuesday Bank of Hawaii (BOH) priced a new issue of preferred with a 8% coupon. I posted a link to a Morningstar analysis of BOH and it is worthwhile to review this before making a buying decision. BOH has potential issues with commercial real estate so care must be taken.

Today or tomorrow it is likely I will make a purchase of baby bonds or preferred stock. Last week I bought in the mid level levels with a purchase of the Spire (SR) 5.90% perpetual preferred (SR-A) and in the CHS 6.75% perpetual (CHSCM). Both buys were ‘adds’ to current positions as I move toward a 60% weighting of equities/baby bonds in our portfolios–a slow move.

My question – what is your number–meaning do you have a target for returns in your portfolio>

I write all the time about my ‘target’–I like to see 7%. Of course in the age of inflation that would seem to be inadequate, but inflation won’t be here forever, at least at the higher level we saw in the last couple of years so 7% will remain adequate for me–for now.

As everyone knows I have a balanced portfolio of the very safe 5%ish levels and the higher risk 7.75% to 9% issues. With the higher inflation we have been somewhat blessed with CDs and Treasuries at levels that make investment there worthwhile and it is really easy to just lay back and collect 5%–and that is fine. Everyone is different-everyone of us has a different plan and level of comfort with that plan.

I suspect that targets for folks drawing income from their portfolios are different from those that are not using that income–right now we (my wife and I) are not drawing any money from IRAs or any investment account. Whether we ever draw money is yet to be determined. We continue to work at jobs, have 2 General Mills pensions and 2 social security checks–with the exception of ‘one offs’ (i.e. new roofs, new vehicles etc) these would seem to be adequate, but who has a perfectly clear crystal ball?

What are your targets?

Well once again the the 10 year treasury yield is falling – now at 4.19% this morning. The bet now seems to be a ‘soft landing’ in the economy. Certainly the most recent data points that way–BUT it is only one months worth of data. Markets seem to get a little overly stimulated to declare ‘soft landing’ only to get whipsawed when the next set of data runs contrary to this thought. Today and next week we don’t have inflation or employment news being released so it would seem we should see some drifting in the markets.

I continue to study the chart below–is there any doubt that the 10 year treasury yield and the average $25/share baby bond and preferred trade price move in an inverse fashion? As I have stated before I expected the 10 year treasury yield to drift lower into the fall and then start to move higher based on the huge over supply of debt being issued by the treasury–I hope I am wrong and the move higher doesn’t occur.

This morning I have entered buy orders on both the Spire 5.90% perpetual preferred (SR-A) which is trading around $23.90 and for the CHS 6.75% perpetual preferred (was fixed to floating, but now is fixed) (CHSCM) which is trading around $24.95. So today I am buying for the ‘safe’ bucket. The Spire issue is split investment grade at BBB/Ba1 while the CHS issue is not rated, although I personally view it as investment grade. I reviewed the most recent earnings release from Spire from 5/1 and the earnings were excellent–very solid. CHS relesed earnings which were down from the year ago quarter–but this agricultural cooperative (or maybe one considers them a crude oil refiner) has shown variation in income for years, but over the course of time this company is very profitable.

Below are press releases from companies with preferred stock and/or baby bonds outstanding-or just news of general interest. News will be slow for the next 4-6 weeks until the 2nd quarter earnings season arrives.   

Abacus Life Announces Proposed Public Offering of Common Stock

AMMO, Inc. Reports Fourth Quarter and Fiscal Year 2024 Financial Results

Mortgage Rates Continue to Move Down

Armada Hoffler Announces Quarterly Dividend

KKR Real Estate Finance Trust Inc. Declares Quarterly Dividend of $0.25 Per Share of Common Stock

Chimera Increases Second Quarter 2024 Common Stock Dividends to $0.35

EPR Properties Declares Monthly Dividend for Common Shareholders and Quarterly Dividends for Preferred Shareholders

Cherry Hill Mortgage Investment Corporation Announces Common and Preferred Dividends for the Second Quarter 2024

SITE Centers Announces Sale of Six-Property Portfolio

AG Mortgage Investment Trust, Inc. Increases Quarterly Common Dividend 5.6% to $0.19 per Share

CorEnergy Successfully Completes Financial Restructuring

AXIS Report: How Risks Including Climate Change, Economic Uncertainty, and Investor Hesitancy Around Tech Innovation are Impacting the Energy Transition

PennyMac Mortgage Investment Trust Declares Second Quarter 2024 Dividend for Its Common Shares

Guaranty Bancshares, Inc. Declares Quarterly Cash Dividend

Well we got some darned decent inflation news this week in both the CPI and PPI–which doesn’t really change the course the Fed is on as expressed by Chair Powell yesterday–data dependent–but it doesn’t hurt the odds of a cut later in the year (my words not his).

The good inflation numbers are being helped out by higher 1st time unemployment claims as well as higher continuing claims.

The 10 year treasury yield of course moved in the direction one might expect–down–now trading at 4.24% which is down 19 basis points from the close last Friday.

This morning I had a number of CDs mature–and while I will put much of it back to work tomorrow in CDs and/or short term treasuries I am going to try to find a lucrative baby bond, term preferred or even a perpetual preferred. Whether I add to a current position or initiate a new position isn’t known yet–we’ll see what looks enticing later today and tomorrow morning.

So we have the consumer price index (CPI) to be released in 15 minutes–forecast is for flat numbers month over month on the headline number and the core rate. Let’s face it no one knows what the number will be – just a bunch of ‘guesses’ out there.

Then we have the FOMC announcement at 1 p.m. (central) followed by the Jay Powell presser–the presser is more important than the ‘announcement’ which we all know will be a ‘no rate change’ announcement.

Markets are pretty quiet right now awaiting the number with interest rates on the 10 year at 4.39%–we could see giant moves in rates today-this could be a 10-15 basis point move day.

Nothing to do today except watch–can’t be a seller on bad news and can’t be a buyer on good news since good decisions can’t be made on 1 piece of data and if a person was so fearful of a number they should have sold yesterday and if one was so confident in a great number buying should have happened yesterday. With bunches of CDs maturing tomorrow and Friday I will factor today’s data into my decisions of where to deploy money

Our portfolios remain composed of a balance of high quality preferreds and baby bonds, balanced with high yield BDC baby bonds and a few high yield preferreds–thus far performing almost perfectly (from my perspective). This portion of our investments account for maybe 55% of our total with the balance being in CDs and money markets. I don’t see too much day to day movement and see the largest movements from our collection of dividends and interest each month. The dividends and interest have kept balances moving higher.

I continue to be torn on future investments–I want to move to 60%-70% preferreds and baby bonds simply to capture the 2-3% spread between high yield and CDs, but this is based on my thought that interest rates would move lower through the summer. Obviously this thought is imperiled by continuing inflation. Holding as many CDs as I hold is boring–but the interest income has been very comforting.

In the end I need to be data driven–so every day and every week I get more info–and in the next 2 days we get plenty of data with the CPI and Fed decision tomorrow and then PPI on Thursday. This means I have no reason to make any decision today or tomorrow on further purchases–sit on my hands and watch (and collect dividends and interest).

Equity markets are soft this morning–down a bit while interest rates are trading down a little in the 4.43% area. Yesterday we had no real economic news and the same goes for today so markets are trading on ‘what ifs’ as we await inflation data. This week has the potential to get real wild–but maybe all news will be ‘on forecast’ and we get a quiet market–I wish.

The bureau of labor statistics (BLS) tried to ruin the stock market and interest rate party with the release of some ‘hot’ employment data. 190,000 new jobs were forecast to have been created in May–but the BLS came in with a scorching hot number of 272,000. Contrary to the BLS numbers the household survey showed unemployment rising to 4.0% So is employment cooling or not? Who knows for certain–guess it depends who you want to believe. Regardless of what you believe the 10 year treasury is trading at 4.42%–up 13-14 basis points. Stocks which started off red are now trading up strongly (about 1/2%).

Oh well–‘party on’! The weekend is here and the weather is beautiful in Minnesota (although the mosquitoes and gnats will carry you away)–I plan to start the weekend in a few hours. Always happy to get a little break from work.

No buying or selling today for me–accounts are down the smallest of amounts but JPM paid me a bushel basket of interest today on CDs which offset some minor losses in preferreds and baby bonds.