I will be adding a new link titled “Sandbox” in the right hand menu.
That link will get you to this page.
I had originally set up the “Reader Initiated Alert” page for ‘alerts’. I was thinking this, for instance, might be when a preferred stock is undergoing a temporary selloff and someone wants to let the population know about it quickly. Of course we all (including me) use the ‘alert’ page for general messaging.
I am requesting that we start using the Sandbox page for all general talk, and try to preserve the ‘alerts’ page for ‘alerts’.
I have had a screen up on one of my monitors all week where I see all comments – no matter where they are posted–it is a great page and I wish everyone had a page like that–believe me we all benefit from all the knowledge being shared. I don’t want to stifle any of the exchange of knowledge, but hope to get things a bit better organized by adding the Sandbox page.
NSS ( NuStar Logistics ) Debt Issue re upcoming Call & last divi ……
I see the NS Preferreds last divi being paid in day or two.
On the NS webpage can’t find a post as to the last NSS being paid.
Any holders with insight….. Thanks. Jim
I have some NS-A and NS-B with Schwab. I got dividend payments today and both items are flagged with “called at par, effective 6/3/24”
I traded all my Ritm-A for Ritm-c. Big difference in YTM.
Not YTM….. neither has an M….. both are perpetual.
Yeah, I meant Yield to Call/Float.
OK…. Of the 3 F/F rate RITM preferreds, C has the lowest current yield and is the least likely to be called given it has the lowest premium over SOFR rate: +4.69 (C), +5.64(B), and +5.82 (A)….So it’s an aggressive move, but I guess we’ll discover more of their intentions by July as both A and B are callable on 30 day’s notice on 8/15/24. Obviously, if they decide to call A or A and B in August, your C’s should see a kick up as expectations will increase and your trade will work out….. Without really knowing much about RITM other than the common’s been performing well recently and they focus on residential, I bot a small amount of B on 5/10 @ 24.68 as a short term play to either receive a great annualized YTC or something in the range of 11.20%+ floating coupon going forward… B’s a much larger issue than A so they could decide to refinance A and not Bl, but I guess we’ll find out shortly..
I actually find the Ds most appealing. Biggest discount to par vs. current yield of 7.64% until 11/2026 and then only resets every 5 years and the spread is the largest of nearly 625 bps protection + applicable benchmark (5 year Treasury rate.)
Agree w theta that the lower price of D and the crazy high spread give it the advantage. Most likely scenarios ranked in order of probability:
1) RITM A/B are called and RITM C/D get a sympathy rally, resulting in higher cap gain for C/D. This is most likely as RITM CEO strongly inferred that A/B will be called.
2) RITM A/B aren’t called in the near term but RITM credit stays OK enough for them to keep A/B outstanding . I would have to do the math to see who wins and some of it depends on the forward curve.
3) None are called and credit deteriorates significantly. In these instances, I mostly favor the lower dollar issue.
Obviously there’s arguments for each of the 4, however don’t forget that D’s high reset rate is off of the 5 year Treas, not SOFR, so for now, that high rate is negated by the 77 basis point advantage SOFR has over the 5 year… Will that always be the case? Of course not and theoretically, it should be reversed based on normal yield curve.
Definitely. I can see the a/b being more of your style. Nothing wrong with a “bird in the hand.”
BTW, here is a snip of the CEO hinting of a call.
https://x.com/yenoms/status/1790397583560409309?s=46&t=3Y9i1Va5ZzPQa4_CnI-nfg
Just from a diversification standpoint alone it’s nice to have a mix of fixed coupon, SOFR floating and 5 Year Note floating issues.
RITM has an interesting integrated model kind of a hybrid between a single fam rental property REIT and a mortgage REIT (with lots of moving parts). For some reason it is always one that I look at from time to time, but never pull the trigger.
Whenever I compare it to NLY F&G prefs it always seems to come back NLY for me.
good comment…market seems to agree rithm.prd/pgx pff pair has gone from near 3 sigma cheap in october 2022 to near 1 sigma rich currently (3yr horizon)..would like to acquire on pullback
MJ I hope I am not asking a stupid question, Please help me understand what you are referring to? I want to learn. I googled Sigma and understand it’s a statistical term, but you are the only person I have come across using the term regarding stocks and I assume stock pricing.
Hi Charles,
Sigma is a Greek letter commonly used to refer to standard deviation. Standard Deviation is a measure how data is distributed about the average (mean). If the data is tightly grouped around the mean, then it has low standard deviation. If there is a lot of scatter to the data sigma is larger.
In investing Standard Deviation is commonly called Volatility. So when they talk about the volatility of the S&P they are talking about standard deviation.
So the S&P returns 10% a year and there is some standard deviation to those returns (maybe 15%).
Sigma is a measure of risk – or probability. 3 Sigma Cheap would be very unusally cheap.
Typically we look at Standard Dev in the context of the famous bell curve. So if we take all of our data (daily returns to the S&P for example) and plot it will make a shape of a bell. The width of the bell is governed by the standard deviation (sigma).
For the perfect bell curve 64.2% of observastions will be in the first standard deviation – so a move within 64.2% of the mean is a 1 Sigma move. 95.44% of observations will be in teh second standard deviation and 99.72% of observations will be in the third standard deviation. Anything outside of 3 standard deviations is called “tail risk” that is a complicated subject.
The three sigma move would be an event that does not happen very often at all.
The bell curve is commonly called a Normal Distribution or a Gaussian Distribution. There are other distributions.
Why does the preferred stock investor care?
When we buy preferred stocks or most corporate or agency bonds they are callable. So the pref stock owner is short a call option. The value of these options is partially driven by volatility (standard deviation) of interest rates. This is a well known finance result. So as volatility goes up the value of the options goes up, problem is that we are short the option so this negativly impacts the value of a preferred stock.
It is complex and interest rates are the primary driver for pref stock valuation, but volatility of interest rates is also an important factor due to the callability of the pref. stock. The preferred stock investor would like very stable interest rates for this reason. Mortgages also have embedded options (people can always refinance mortgages this is a call option just like a callable pref stock) so mortgage investors are short options on interest rates – threfore mortgage investors would also like very stable interest rates (low standard deviation).
Sigma is important sorry to say.
FWIW
Thanks, August. Appreciate the explanation…. So two questions come to mind immediately when thinking about “sigma.” What data is needed and how does an individual go about calculating sigma on his own or does he have to go to xyz site and have it done for him? And also, are Bollinger Bands in any way related to sigma?
Thank you August for the explanation to what seems a complicated subject. Kinda early out here for me, So trying to understand.
!. Preferred stocks and bonds that have a call or term date have less risk than a perpetual but are still affected by volatility depending on several factors like the market or the quality of the issuer. The farther out the call or term the greater the volatility, closer the holding gets to call or term date the volatility flattens out.
2. Volatility of preferred and bonds prices relating to interest rates you made that pretty easy to understand and again the advantage is to term products compared to perpetual.
3. If you have a group of stocks like the preferred of AGNC you could trade between the preferred depending on the volatility and take advantage of the disconnect between pricing and yield.
I have to think more about this, it’s another tool in the tool box available to investors and analysts just not sure how often I would be using it.
Thank you for the explanation
2WR I had post but it seems to have vanished, not sure why.
Bollinger Bands are based on a moving average and the standard deviation of that moving average. You take 20 (for example) most recent prices and average them. Then you take stddev. The top band would be the mean + stddev and the bottom band would be mean – stddev.
If the prices follow the bell curve then 64% of all prices should be inside the bands. It is actually a useful technical analysis tool for that reason.
Anytime one can calcualte an average, one can calculate a stddev. If you have 20 kids in a class room you can calculate their average height and the stddev of the height. In fact, pretty much anytime you do calculate an average one should immediatly wonder what the stddev is.
HI Charles – one should separate the maturity of a bond and the fact that it is or is not callable.
A callable bond or preferred stock is really 2 things – a straight bond or preferred stock and a short call option (the option is typically an option on interest rates, but not always).
The value of the preferred stock or bond is determined by things like credit quality, interest rates, time to matuirty etc.
The value of a call option depends on several factors: Price of the underlyig security, strike price, interest rates, time to expiration of the option, and volatility. Each of these factors impact the value of the call option that is embedded in callable preferred stock or bonds.
When markets are volatile (high std dev) – option values go up. Because you are short the option this effect makes the value of your perferred stock go down. Stddev (volatility) us bad for callable preferred stock/bond/mortgage investors.
Wow, August and 2WR, Great, detailed discussion. Thank you. Nice to have folks who understand this stuff and are willing to explain it.
Makes my head hurt to have to resurrect this kind of stuff from the dark basement of my leaky, old memory palace.
Only thing I would add is that all of these statistical measurements are just tools. They help give us “handles” to use when analyzing issues, but they aren’t foolproof (I don’t know of any tool that is – other than investing in whatever Gridbird is in).
Private, some people can have some software to see these things. I dont get in depth on this personally but often we do it simply by the “eye ball test”. Arbitraging a sell off of an illiquid and buying into it and selling a like sister that hasnt had a sell off into a strong underlying bid is a good example of accomplishing this. But whether a issue is considered “cheap” or “rich” still doesnt supersede ones more important risk management/investing decisions such as risk area, duration, yield needs, tax efficiency, sector concentration, etc. etc.
August-
You wrote, “Anytime one can calculate an average, one can calculate a stddev.”
Don’t the data also have to have a normal distribution for stddev to be meaningful?
The term “tail risk” has become common. I understand that to mean outcomes that fall well outside the bell curve and sigma expectations.
rocks2stocks, there would need to be sufficient number of samples (data points) for the std deviation to be meaningful. And if the distribution was asymmetrical, one could compute a left and a right std deviation, respectively with samples less than (or equal to) the mean, and samples greater than the mean.
Rocks
Tail risk actually means a couple of things.
1)occurrances which are outside of the 3 sigma limits.
2)If the shape of the distribution is actually not a bell curve but exhibits what is called skew or kurtosis. In these cases the probability of “tail events” is higher than the bell curve would predict.
Fun to talk about, but not really something a preferred stock investor really needs to worry much about IMO.
with item #2 seemingly improbable things (black swans) happen more frequently than one would expect. this last point is what blows up porfolios that are overleveraged and base everyting on the bell curve.
Can anyone solve this mystery? “CGBDL 8.2% Note due 2028” and the annual interest is properly listed on Quantum as 25x .082 = $2.05 IPO date 11/23
Two interest payments have been made of 0.5751 each , equivalent to $2.30 or 9.2% ! i can see the first payment being different ( to account for the IPO timing) but not any subsequent payments . will this payment continue or revert to the (proper amount) $2.05/4 = .5125?
Out of curiosity, did you personally get paid this amount twice or are you just seeing it reported that way??? It’s been known to happen where sometime automated aggregators take the first reported dividend and project it forward without examination……. Were you paid this amount twice?
QOnline shows 6/3 as pay date , as does etrade which shows .5751 – which is what I was paid on 3/1 with no clawback correction after.
Guess we’ll see if it sticks
yes I got paid the .5752/share March 1; 400 shares got $230; who knows?
enough of this ;
Anyone know why TPTA has jumped in the last week?
Thanks
They had a conference call and tried to address the liquidity issue. Some people found it positive. I didn’t. I sold on the pop..
@liabs Troy
Oh yeah brother, sold me some Toilet Paper Trust today. There was somebody who was hatin’ on me on the board for TPTA initially.
I rolled the toilet paper money into some other toilet paper called Globe Life bb. Gobble up the next interest payment, then who knows?
Haha. I bought and sold the same issues.
US Treasury rates jumping UP again today after yesterday’s advance…
2yr T~ now 4.985%, testing 5.0% threshold
10yr T ~ now 4.613%, passed through 4.6% threshold
30yr T ~ now 4.738%, jumped through 4.7% mark
MAIN News: Main Street Prices Public Offering of $300 Million of 6.50% Notes due 2027 – FYI
https://www.bdcinvestor.com/main/202405/main-street-prices-public-offering-of-300-million-of-6-50-notes-due-2027/
I bot IVR/PRB at 24.45 (24.07 clean price) ..it floats at 3mo SOFIR plus 5.18 on 12./27 at which point I expect it to trade near 25 …assuming it does ytc is 14.39
OK, I know there has been lots of chatter on GJH lately. Just trying to make sure I am not missing something, from a relative value perspective. Feedback appreciated.
From a relative value perspective, GJH still appears cheap compared to it’s underlying bond, CUSIP 911684AD0, which currently trades at $106. Of course, the bond purchases don’t get the accrued interest (they pay up for it), whereas GJH holders get any accrued interest as part of the price. Clean vs Dirty.
The coupon differential is 0.325%: 6.7% vs 6.375%.
The time to maturity (12/15/33) is about 9.5 years.
This equates to about 3.1 points (.32% x 9.5) advantage to the bond, in future value terms, which is more conservative.
Based on a price of $9.70 and taking out the accrued interest of about 30 cents results in a price of $9.40. So the actual diff in price is 12 points (106 – 940), using bond terms.
I get that the bond has a make whole call, but is it really worth 12 points? Plus, if the bonds are called (via make whole) GJH will be called as well and goto par which would be very positive for GJH.
What am I missing?
I know liquidity is a factor. My hunch is that
a) GJH is so tiny that it is almost impossible to arb, and
b)the market is sleeping on the accrued interest aspect of GJH that will be go ex on June 14th.
FWIW- I did read the GJH prospectus and didn’t notice worse terms (compared to the bond) expect for the warrant and the lower coupon.
Thoughts?
FWIW.. I looked for a comp T mobile issue. Its 2034 bond trades at about 5.5% YTM.. this compares to 5.9% for the 2033 USM bond, at $105.7.
I do not think you are missing anything. GJH and many others like it have always yielded a bit extra ever since I started paying attention. It is an oddity leftover from a time when it was popular. I would assume the larger investors just do not care for the concept and leave it for the little guys to play with. Isn’t there only like 1.25 million shares or so? Times 10 that is only 12.5 million dollars worth. So yes, I agree with you. It is small.
As for the make whole… can anyone even recall when the last time that has been used for any bond? I feel it is just put in there, in most cases, to give certain buyers the ability to do their accounting in a more guaranteed manner.
As for the accrued interest.. I think most buyers of GJH are aware of that but it is not enough of a factor to bring the price much higher currently. It seems like the little guy gets a small win in this case. Rare event.
Thanks fc.
I guess I assumed the discount would narrow once the probability of T mobile (assuming the debt) increased. Yet, here we are w GJH trading at 7.25% YTM.
Works for me… I actually increased my position yesterday.
BTW, this oddball pref is one of the reasons I love this board… very illiquid and can offer value from time to time. Too small for the big boys to arb.
T+1 investing starts today…
Famous financial researcher Campbell Harvey just released a new paper on future expected returns of gold. Recall that Campbell was the originator of the “inverted yield curve forecasts recessions.” It was his PHD Dissertation at University of Chicago under Nobel Laureate Eugene Fama. He is now a professor at Duke.
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Is There Still a Golden Dilemma?
Abstract:
The real, inflation-adjusted, price of gold is high. Historically, a high real gold price has been associated with low inflation-adjusted gold returns over the subsequent 10 years. Further, historically the realized 10-year rate of inflation has had close to no impact on realized 10-year nominal and real gold returns. An influx of investment in gold (from gold-owning ETFs, Costco shoppers, “de-dollarizing” central banks and possibly others) has seemingly doubled the real price of gold relative to pre-influx times. Today’s golden dilemma is yesterday’s golden dilemma: has an influx of gold buying ushered in a new age of permanently higher “this time is different” real gold prices or is this simply the latest “wash, rinse, repeat” cycle setting-up a significant fall in real gold prices
Link to paper:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4807895
Tex, I still think the market is a better investment. At least as long as commissions are free to low. Gold doesn’t pay a dividend, not easy to store, has trading commissions for buying and selling. ( You pay a premium to buy and discount to sell)
If I was to do gold I would look at mining stocks.
Dabbling in GDX
Lotta volatility
Westie 18 : I have a few shares of GGN (Gabelli) which holds some gold miners along with some other natural resource companies. The price has not moved much in the two years I have owned it, up slightly, but it does pay close to 9% dividend and a monthly payer.
10-year return stats on SPX, gold, whatever, tell you nothing about the price path of the asset that results in a low average return. A spike followed by a crash and bounce can result in a net low 10-year return.
During the time it took to read that paper my youngest son passed through all the stages of adulthood. Perhaps we need a paper on the relationship of wasting time writing lengthy papers v summarizing into bullet points, because after reading that thing I want to use the bullets for another purpose.
Holy Cow!! Thank you so much to all the folks here who responded to my Medicare questions. Just a tremendous amount of great information. It’s funny, you’d think that someone who has been around investing and the markets for almost 40 years would be a little more in tune with something like Medicare, but I’m not. So will do some research and fortunately, I’ve have time to get prepared. Thanks again and I hope everyone enjoys the rest of their holiday weekend!!
I heard a bunch of negative comments about Medicare Advantage. Yet, after 20 years on a major company PPO I retired and went with Kaiser HMO Medicare Advantage here in Southern California. Have had the best experience at Kaiser compared with the other insurance. Pay the Medicare $174 per month and get most services for free except $30 MRI and $100 emergency room visit. Max out of pocket is $999 which I cannot imagine reaching even if I needed surgery. I’m not marketing for Kaiser, just realized that they have a superior system compared with the other insurance. Quality of care has been excellent, and they pay me back if I travel to a place where they do not operate and I need medical care. What’s not to like.
Is your advantage plan through your former employer or did you sign up as an individual without any corporate connection?
Bob, the Kaiser Senior Advantage Medicare plan is not through an employer. It is a Medicare option you can choose in the Medicare Advantage universe. Made the decision to do this thanks to so many friends who gave the thumbs up to Kaiser. Truly glad I did not go with traditional medicare since the cost with a Medigap add on would have been over $400 per month.
I signed up for Medicare Part A but dropped Part B. I have my old NASA insurance and it costs me about the same as Part B and covers more. I have no interest in the Advantage things being offered.
Kaiser is a well-known outlier in the insurance space with a unique model. Your experience is not generalizable. It is like saying variable annuities are generally a bad idea and then somebody with a solid TIAA plan pipes up. Not relevant. Most people are better off avoiding Medicare Advantage if they can afford to do so.
Warning – long post ahead:
Don,
Not looking to argue with you, but if I may offer a with a different perspective based on my (anecdotal) experience with Kaiser (as a non-patient). I live less than a quarter of a mile from one of their big hospitals and we know a lot of people who use them (many moved into our neighborhood to be close to Kaiser):
Kaiser is the poster child for the statistical practice of medicine. They pretty much invented it. That can be good, or very bad. Nice to have a “one stop shop” for most things, but it is a big bureaucracy to deal with.
-If you have a well understood condition, chances are they will have a good practice team. For example, we know several people with Downs kids. Kaiser has a practice specific for downs. Extraordinary care. Most of those kids we know are living into 40s and beyond.
-If you have “garden variety” ailments, Kaiser can also be good. They don’t seem to hire/retain the best doctors, but they seem to get good enough caregivers to handle common maladies.
-if you have something unusual, you have to be ready to REALLY fight to get proper treatment. I think that if you don’t fit in one of their pigeon holes, they won’t (or Drs aren’t allowed to) spend the time to figure out what is going on. At best, they seem to push people into pre-defined treatment plans, and if they don’t fit, it is up to the patient to push back.
-If you are getting older and it might be expensive to treat you, they seem to try to severely limit your treatment and force you (or your family) to fight for care.
Example: One of my neighbors (about 80) kept ending up in kaiser hospital with anemia. They would treat him for a few days, then discharge him (about every 3-4 months for about 18 months?). Finally, he was admitted and they told his wife that they recommended moving him to palliative care. His wife came to me (I am NOT a doctor) because she couldn’t to understand what the problem was and needed help even understanding what they were talking about (i.e. that “palliative care” means “make him comfortable and let him die”).
I suggested she meet with the doctors for them to explain why he kept ending up back in the hospital (underlying cause), and why they thought that was terminal. She is a simple woman (grew up on a ranch, high school education), and my impression is that they treated her like she was stupid. At the meeting, they told her it was “probably internal bleeding”.
OK, I understood those words, but internal bleeding is a symptom, not a disease. Something was causing the internal bleeding. She went back (this was in 2020, so she couldn’t bring anyone along), and pushed back pretty hard that she wasn’t about to let them kill her husband, and (using my words), suggested that if they couldn’t make things clearer, she would be back with her lawyer.
Magically, they found a “patient advocate” who could help explain things and they moved him to another kaiser hospital, where they “discovered” that one of the medicines they had prescribed was causing stomach bleeding – hence his “internal bleeding” hence his anemia. First year med student should have been able to figure that out. They changed the meds and the problem was resolved. He passed away a couple of months ago (4 years later) from something completely unrelated.
-about 30 years ago, when I was working for big multinational in California, all the personnel records requests related to medical malpractice lawsuits in our part of California were processed by a gal who worked for me.
Couple of things struck me:
(1) about 10% of our workforce was on Kaiser, but over half the malpractice lawsuits we saw were against Kaiser. Don’t know whether that was because their practices were just worse than average or something unrelated (maybe they just didn’t settle?), but it seemed like a big disparity.
(2) some of the suits were breathtakingly bad.
Example: We had a woman executive who had died of cervical cancer, even though she had pap smears every year. (her husband was a personal friend, so I got a lot of detail). Turns out that Kaiser had “misread” the most recent smear (clearly showed cancer, almost a year before she was diagnosed), and for the prior 3-4 years, they had also “misread” every smear. Every single time. On each year’s slides, you could see the textbook progression of cervical cancer. I don’t know whether they had a blind person reading them, or just didn’t read them, or ??, but missing the same thing for multiple years was horrific.
-Kaiser seems to have a lot of serious misdiagnoses. We know of two people in our church congregation who were diagnosed with terminal cancer by Kaiser within the last 5(?) years. One, who is a veteran, went to the VA for a second opinion, who said it was not cancer, but pancreatitis. The other went to an outside doctor for a second opinion and turns out he didn’t have lung cancer, but had a fungal infection in his lung.
Again, this is all anecdotal and I don’t have any data on how similar issues play out in non-kaiser practices, but it certainly strikes me as a place I would think twice about before I let them treat me.
My spouse is long time PT, about 30 yrs practicing. We’ve had this discussion (one sided) where she simply will not allow us to deviate from Medicare proper. It really isn’t even anecdotal based on the number of times she has come across situations where Kaiser (and whatever other HMO’s there are) has basically said “No” to acute rehab opportunities and other longer term care requirements for those situations that are more serious if not dealt with. Many times she herself was the one advocating for elderly patients as her view (and most every PT on the staff) has noticed Kaiser and Co. take advantage of older folks less inclined to fight for the care and without their younger offspring or family lawyers available. Kaiser (and their ilk) are great for those folks lucky enough to be healthier than the average person, but as soon as it goes south be ready for a fight. It’s high irony that I hear the same complaints from those British and Canadian friends of mine describing about what happens to those unfortunate people that come down with something worse than the average malady. I have other more personal anecdotes to pass along but all they would doing is piling on to whatever I typed here. No guarantees in life, we are lucky to have choices to make. Personally, I’d rather have the choice than be forced one way or the other, but it’s important, I think, to hear those voices out good or bad about something you intend to do.
Hearing more and more discussion about HELOCS(Home equity line of credit)/reverse mortgages as a way to give homeowners >1 trillion $’s to spend. What’s different this time is that these programs would be quasi-government backed programs offered by Fannie/Freddie. Meredith Whitney recently wrote a FT editorial advocating these. The New York Times also ran a recent article about them. Without opining whether this is a good idea or not, the odds of this being implemented are going up daily IMO.
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The mortgage reform that could unleash the next big US stimulus
Financial Times
Meredith Whitney
What if I told you there could be an unprecedented stimulus injection into the US economy that will cost the government nothing and add not $1 to the national deficit? As early as this summer, a proposed move could begin to unleash almost $1tn into consumers’ wallets. By the autumn, it could be on its way to $2tn.
Last month, the government-sponsored mortgage finance agency Freddie Mac filed a proposal with its regulator, the Federal Housing Finance Agency, to enter into the secondary mortgage market, otherwise known as home equity loans. This was a smart move by Freddie, and the FHFA will do a lot of good by approving it. Despite the more than $32tn in equity on homeowner balance sheets, very little of it has been tapped through home equity loans.
In 2007, just before the financial crisis, there was more than $700bn in home equity loans outstanding. Today, there is roughly $350bn. Home prices have risen more than 70 per cent since then, so why have home equity loans halved?
After the financial crisis, banks have actively taken down their mortgage exposure. Bank of America, for example, has cut its home equity loan portfolio from more than $150bn in 2009 to $25bn. And in 2022, more than 50 per cent of home loans originated from non-traditional operators. These non-bank companies don’t have the balance sheets to hold loans as the banks had traditionally done, so unless they can sell the loans they originate to Freddie, its fellow housing agencies Fannie Mae and Ginnie Mae, or private investors, they don’t originate them.
There is a robust and well-oiled mortgage-backed securities machine for first mortgages in which Fannie, Freddie or Ginnie buys mortgages, pools them and sells them as mortgage-backed securities to private investors on the open market, facilitated by Wall Street firms. This process dramatically increases liquidity in the market. None of this liquidity exists in the second mortgage market.
The Freddie Mac proposal could change all that, and it could not come at a better time. Most people in the US are feeling the sting of persistent inflation, but older Americans living on a fixed income have been hit particularly hard. Insurance costs for homeowners have risen well over 11 per cent over three years while they are paying more tax. US property tax revenues have risen 26 per cent over the past three years.
That is probably why seniors have taken on more debt than any other age group over the past few years. Today, they hold 23 per cent of all consumer debt, double their share in 1999. These trends should seem counterintuitive, as typically younger individuals and older individuals would be at either side of the bell curve of total consumer debt outstanding with less debt.
Prior to the financial crisis, this was how the balance of consumer debt was distributed. Now, almost half of all seniors are at risk of a financial shock with less than six weeks of liquid savings. This means that if they face an unexpected medical expense, a sudden home repair or a rapid increase in property taxes and insurance, they have no safety net. This vulnerability makes older adults a highly receptive audience to home equity products, provided they are reasonably priced and relatively easy to access.
The proposed Freddie Mac second mortgage/home equity proposal, if implemented effectively, could be a lifeline for these households, offering them financial flexibility. It sets up guidelines to protect both the borrower and Freddie Mac that are likely to be the template for future moves by Fannie Mae and Ginnie Mae. Freddie will only buy the second mortgages of borrowers that it already has a first mortgage with, and the combined loan-to-value of both the first and the second mortgage cannot exceed 80 per cent of the value of the property. The current loan-to-value of Freddie’s mortgage portfolio is 52 per cent. Thus, we estimate Freddie could unlock $980bn in equity for homeowners.
If Fannie Mae and Ginnie Mac follow Freddie Mac’s lead into buying second mortgages, we estimate the secondary home equity loan market could exceed $3tn. By opening up the securitisation market for second mortgages, not only would more institutions be inclined to originate the loans, but the cost to borrowers would meaningfully decline with more finance providers. It would also provide big stimulus to an economy and consumer that appear to be slowing down without adding a dime to government debt. Rarely have I seen such a true win-win scenario for the government, Wall Street and the US consumer.
Link to FT:
https://www.ft.com/content/1d287e0c-afda-46f0-9961-9da157b50101
Link to NYT article: “The High-Class Problem That Comes With Home Equity”
https://www.nytimes.com/2024/05/19/your-money/home-equity-retirement.html
Tex, I don’t know. My parents in Pennsylvania once told me they got reduced property taxes as seniors. The cost of everything goes up and government keeps raising taxes to keep up. On one hand I complain about the condition of city streets and on the other hand I don’t want my taxes to go up. California has prop. 13 and I guess I don’t appreciate it as much as I should. Lately there is a revolt simmering about all the special fees the local, regional and state has been using to collect money and I believe there is a case headed to court asking for a judge to rule these fees are taxes and meaning they have to be voted on instead of being imposed.I looked at Oregon and the state has no sales tax and people are addicted to that so a lot of state money is burden on real estate. Washington State I think I heard will allow seniors to defer property taxes, but when you pass it has to be paid.
The idea of the government getting involved in reverse mortgages bothers me. It’s not free money, it has to come from somewhere even if they are printing it. Then what? They take the money back because you have to pay taxes with it?
As an added thought, some of us are in a position to downsize and take the equity out we have accumulated and moved to smaller homes or other areas. This has created another problem as the costs of smaller homes has went up and different parts of the country have seen average home prices go up
Tex-
Thanks for that article.
Would it be gov’t money printing. No. It’s credit creation, which is new money created by banks/lenders.
Would it help seniors? If the borrowers are already strapped for cash, how are they supposed to make an additional mortgage payment?
How would it affect inflation? New money in the system? LOL. You tell me.
Where will the new money end up? You can bet some portion will make its way to financial markets.
Will it eventually be called Freddie’s Financial Freedom or Freddie’s Folly?
With all the discussion on when to take SS and the like, is there a point when it makes sense to self-insure vs being enrolled in Medicare? Is that even an option? I’m 58 and really have not thought about any of this because I never wanted to think about relying on some gov’t program.
RMH, self insurance sounds like a really bad idea to me. You paid into this all your working life, so why walk away now? Also, when I receive a medicare paid statement, it becomes obvious medicare has negotiated (demamded?) HUGE discounts from the original charge. I imagine anyone self insured would be stuck with the original cost.
I agree – self insurance would be a really bad decision.
But I mainly wanted to comment on your huge discounts from original charges. Having worked in the industry for a while, charges are basically irrelevant in medical billing. No one pays charges from hospitals. All insurance companies have their own agreement for reimbursement rates. But even self pay patients can and do get discounts from “charges” from most providers by simply asking. No one should be looking at medical charges and think they are real numbers meaning something
Rocky–the closest thing to self insuring would be Medicare Advantage. There are “perks,” but there’s a large annual deductible each year, and facilities can drop your specific coverage. You’re generally limited as to what providers you can see, and if you have a pre-existing condition you probably can’t switch plans because you’ll be denied. Compare that to original Medicare (plus a Medigap plan) that covers nearly everything 100%, and you can choose any provider anywhere in the country. No contest, in my book.
Thanks Jersey and James for the replies. Like I said, am totally in the dark about all this but I guess I’ll need to study up. Seems like the biggest drawback might be the income-based premium up-charges if one can’t manage that?
Rocky–if IRMAA is a potential problem, then start doing Roth conversions now.
Thanks. Unfortunately, it’s not the tax-deferred accounts that will be the problem.
James, your comment is not quite accurate as it depends on the area of the country one is located in.
In a number of places Medicare Advantage plans are a no brainer decision. MUCH lower cost, extra perks, low deductibles, no issues with pre existing conditions, and wide provider networks. In my area every Medicare Advantage plan covers nearly the same provider network which is nearly every physician in the area. In fact there are two major health systems, each with their own insurance product, and no matter which Medicare Advantage plan one has, a person can go to either health system and provider in said system. So Medicare Advantage plans in our area have a much lower cost and are a no brainer compared to the higher costs of Medigap coverage
Maverick–yes, I suppose a lot is based on location. However, with Medicare Advantage you are also delegated to those certain locations in your state. If you want to visit specialists in another state or have a second home in another state, then it’s not the right choice. Also, from what I’ve read, Medicare Advantage is great if you’re healthy, but once things start going south it’s going to cost you and your options are limited. At least with the HMO policies.
James – well it depends on the size of the network. I live in Western PA. The University of Pittsburgh Medical Center network has providers and facilities throughout at least half the state. So it is a very large network. And quite frankly it has the specialists people from other states and countries come to see. So no real reason to seek out specialists in other areas
I do agree if you split your time living between two states, that is a different issue and calculation and a Medicare Advantage plan is probably not the best solution.
But if you just travel occasionally and need care while on vacation out of state, all plans have provisions to cover that
I am not sure why you say Advantage plans are great when healthy but if things start to go south, it will cost you and your options are limited? You know what the deductibles and out of pocket limits are in advance. They have to follow Medicare rules. Those deductibles and OOP limits don’t change based on your health nor do your options change based on your health. Now plans may change year to year as plans adjust coverage but that is also true for Medigap and Part D prescription Drug plans. And one can change plans annually during open enrollment
And I favor PPO policies over HMO (no real cost difference in our area)
Sure – one can get a Medigap and Part D plan that may reduce OOP costs more but you are paying for that upfront in higher premiums. There is no free lunch
We use Blue Cross Advantage in Massachusetts – its available as either a PPO or HMO. The BC Advantage network is the exact same network as the commercial group policies for Mass BC/BS. Basically all care providers in eastern Mass are in-network. The plan includes medical, hospital, drug, dental and vision.
We are fortunate to have good health so our plan has no premium with BC/BS. The only cost is the Part B and IRMAA payments. BC offers several different plan levels each having higher premiums and lower co-pays and deductibles. With Advantage we only need the BC/BS card – do not need to carry Medicare card.
Many folks prefer the alternative to Advantage -> Medicare Supplemental Plan also known as Medi-gap. Supplemental Plans are more flexibility are their network includes all Medicare recognized Drs, clinics, and hospitals in US. So if you live in two states, winter and summer, Supplemental may work better. Like Advantage – Supplemental plans are different across the states. Unlike Advantage – you will need to carry both health insurance cards, supplemental and medicare, and spend more effort to coordinate your healthcare payments.
IRMAA ->https://www.ssa.gov/forms/ssa-44.pdf
Maverick, from what I understand doesn’t matter if it’s Medicare or Medicare Advantage, there’s only so much money in the pot The health care insurance provider gets the same money as what is going to Medicare.
Yes there are perks and other things better with Advantage but here in California there has been several well publicized cases of major medical groups refusing to renew with these advantage providers. UC Davis is one here in Northern CA. Late pay, denial of coverage, etc. left the patients scrambling to find new providers. And of course it has to be in the group so everyone is trying to get into a doctor who doesn’t take new patients or if they do it is straining the existing system. Even having to drive farther away.
Charles – As I said, it depends on the part of the country one is in. Sorry, but I ignore most of what happens in California as not relevant to most of the rest of the country
RMH, I think there are three major factors to consider being medically self-insured.
1) Liquid net worth you would be willing/able to pay for medical treatment.
2) Probability of getting into a medical situation requiring very expensive treatment, like cancer, leukemia/lymphoma, organ transplant etc.
3) Medical billing rates without Medicare/Insurance coverage.
We know many people that have come down with cancer, leukemia/lymphoma etc where the out of network charges went beyond $ 1 million. Ask an oncologist what the billed cost for a treatment plan is and he/she will confirm the >= $ 1 million. Another friend has an unusual dermatology/lung condition where the annual drug cost is $360k. All of these folks have or had insurance, so their out of pocket was manageable. If you were self-insured, you would be expected to spend down your liquid net assets to pay the billed rates. And if you do not pay, pretty common for the charges to be sold off to a collection agency that will ultimately sue you.
My pure guess is that an individual has a greater probability of needing one of these expensive medical treatments than their house burning down. Yet, most folks carry fire insurance. If you are questioning the need for medical insurance, I would first question the need for fire insurance. If you have high enough net worth, you don’t need either. (Liability and/or umbrella liability is a different question.)
From a cost standpoint, all of the Medicare choices are dirt cheap. Uncle does charge you more if he thinks you have too much income. Note that tax free municipal bond interest gets counted as income for the Medicare calculation. So you can have literally ~ zero AGI (Adjusted Gross Income) but the IRMAA (Income-Related Monthly Adjustment Amount causes your Medicare Premium to max out. The minimum 2024 charge for Medicare Part B is $174.70/month and the max is $594/month.
My recommendation is that if you are comfortable writing a $1 to $2 million check for medical treatment, then self-insurance is an option. I know many people that CAN write that check that do NOT self insure and have Medicare coverage.
There is more to Medicare including “supplemental plans”, Advantage plans and drug plans (Part D) but they are secondary to the “Do I self insure” question.
Thanks Tex and Maverick and everyone for providing this great info. As I said, I’m 58 and have never paid any attention to Medicare, but I definitely need to get a handle on it before I need to enroll. I’m trying to keep myself in good shape, but as mentioned coming down with cancer or some other life-threatening illness could soak up a good chunk of one’s net worth. I guess just the thought of dealing with a government bureaucracy gives me the willies, but I’ll just have to get over it.
Rocky–if you’re in original Medicare, you don’t “deal” with the government. But you should have a Medicare supplement (Medigap). You simply get medical care, and once you meet the annual deductible ($240 in 2024 for Medigap Plan G), you never get another bill. It’s all submitted/handled on your behalf behind the scenes.
When the time comes, there are free Medicare seminars put on by SHIP (State Health Insurance Assistance Programs) that explain everything.
Without Medigap insurance, you’re on the hook for 20%. If you have heart trouble/cancer or some other disaster, costs will add up quickly.
WSJ article on the Medicare Advantage vs. Medigap coverage topic:
The Big Mistakes People Make in Medicare—and How to Avoid Them
Seniors choosing Medicare plans can be left with higher costs or fewer doctors than they expected; ‘I was so stupid’
Gift link:
https://www.wsj.com/health/healthcare/medicare-advantage-enrollment-risks-923e7952?st=j1hmfddbc1md6z7&reflink=desktopwebshare_permalink
Top ranked reader comment:
“With Original Medicare plus Plan “G” supplemental, your out of pocket costs per year, other than pharma products, is maximum of $226. You are accepted at every hospital, clinic, eye doctor, chiropractor, and urgent care clinic that accepts Medicare anywhere in the U.S. You can see specialists without referral. Plan “G” piggybacks Medicare such that if Medicare pays the 80%, Plan “G” must cover the rest. Thus, no denial of claims if Medicare approves its part. My plan “G” is $185 a month.
Whereas with Medicare Advantage you are:
1) Limited to the providers in the network in the area of your current residence. In Florida the plans for most insurcos are granular, such that if you move to another county, you may be forced to enroll in another plan with higher costs.
2) Out of pocket can be up to $8,300 vs. $226 for Plan “G”.
3) You cannot see a specialist without a referral.
4) Urgent care clinics may not accept Medicare Advantage.
5) If you become chronically ill, your copays and out of pockets will escalate and you will not be permitted to switch to Plan “G.”
6) The Medicare Advantage provider will decide when and where you receive healthcare. You are putting your life at the mercy of a for-profit company whose interest is to minimize the healthcare they pay for.
7) Your Medicare Advantage Plan can be changed or cancelled at the provider’s discretion. They can reel people in, then raise premiums and out of pocket costs later. ”
https://www.openweb.com/share/2WqLW00mfjADujIQS4jZd6j5eRy
+++++
No discussion of self-insuring, but both the article and the reader comments are worth considering.
Thank you ESW for mentioning the option of plan G not to get confused,
Is this different from medi gap coverage or the same?
Charles
Plan G is the best Medigap coverage available right now, regardless of which insurer you choose. It’s the supplemental policy for original Medicare.
Anyone with aspirations on travelling abroad may want to check what a Medicare Advantage plan covers overseas.
One thing I normally do is to have travel insurance when going abroad. There are some good options and I usually use Generali. With that said, if you were going to live in another country for 6 months, that might be a different situation.
ESW – Sorry but there are a lot of factual inaccuracies in that info you posted. Now clearly everyone’s situation is different based on where they live, their personal health situation, etc etc. So there is no singular answer as whether Medigap or Medicare Advantage is better
You say your Medigap max OOP is $226 but you also say you pay $185 a month for it. So you are spending $2,220 a year on premiums. Comparatively, someone could get a Medicare Advantage plan at zero cost (or in my wife’s case, at $23 a month – or $276 a year) and have an OOP limit of $5,500 max (but to hit that OOP limit one must be quite ill when you look at what is covered). So right off the bat, you are paying around $2,000 more for Medigap coverage.
But to clear up a few inaccuracies – you said:
Whereas with Medicare Advantage you are:
2) Out of pocket can be up to $8,300 vs. $226 for Plan “G”.
Obviously depends on the plan. As noted, you can get Advantage plans with lower OOP limits. And based on what each plan covers, one has to be significantly ill to come close to that. For example, my wife’s plan has a $5500 OOP limit – but also covers all inpatient hospital costs after the first $250. So a 3 month hospital stay would only have $250 she would be responsible for. The biggest area one may want to focus on with regards to OOP costs is prescription drugs. If you are on a high cost specialty medicine, that is the way most people will run up against the higher OOP limit
3) You cannot see a specialist without a referral.
This is false. Depends on the plan. All PPO advantage plans in our area require no such referral
4) Urgent care clinics may not accept Medicare Advantage.
Some will, some won’t based on the network. IMO this is pretty irrelevant but if a specific urgent care clinic is important to you, know your network
5) If you become chronically ill, your copays and out of pockets will escalate and you will not be permitted to switch to Plan “G.”
False- No, your Advantage co-pays and OOPs do not escalate nor are they based on your health status.
6) The Medicare Advantage provider will decide when and where you receive healthcare. You are putting your life at the mercy of a for-profit company whose interest is to minimize the healthcare they pay for.
Again utterly false for any Medicare Advantage PPO plan
7) Your Medicare Advantage Plan can be changed or cancelled at the provider’s discretion. They can reel people in, then raise premiums and out of pocket costs later. ”
False – A Medicare Advantage plan can only change what you pay in terms of premiums and change coverage levels once a year on Jan 1 just like a Medigap plan. That is why there is open enrollment each year so consumers can change plans too. And yes, based on cost / loss ratios Medigap plans can and do increase the premiums you must pay each year just like any other insurance product, including Advantage plans.
Plenty of Medicare posting. I haven’t been reading them all. I do know there are many plans that are difficult to fully understand.
Just like to note that Plan G in my area is $309 a month and the most complete Plan F is $359. Add to that the $174 for Medicare. So medicare with supplemental plan can be up to $533 per month or $6396 per year! Considering I’ve been paying a medicare tax my entire life medical care is very expensive.
Rocky, I have 5 years to figure this stuff out also…There are many moving parts here. But since you havent mentioned it (assuming you have your “working quarters” met), I wanted to make sure you understand you get the base Medicare Part A free.
https://www.healthline.com/health/medicare/is-medicare-part-a-free#premium-free-eligibility
The hardest part then is figuring on your bolt on supplements and understanding consequences for adding or not adding any additional supplements while factoring in income thresholds which increase such costs.
@ GRID-just do it, MEDIGAP not Advantage…there are no Free lunches
My initial lean is that, as my brain rots from old age I will prefer simplicity. But I will at least look at all options. I will always be over the income limit, so that sucks. One thing is certain, it would have been tremendously more profitable for me to have just self insured since birth. And you could throw auto and home insurance in there also. Dear Lord I would have untold millions in the brokerage account if I had forgone all insurance and had the proceeds instead invested in the market.
Medicare advantage PPO plans are good anywhere with just a little higher deductible out of network. This is what I have because I do a lot of traveling. I’ve had this for 10 years with no problem and the monthly cost is $0 with all the numerous perks. With all of that, why would you self insure?
Is your advantage plan through an employee retirement plan or an individual plan? I’ve learned that the individual plans are not as robust with network options and perks, so a lot of the discussion really does depend on individual situation. Going with an individual plan from my state (formerly self employed so no employee group plan option) has limited options when traveling.
If you are Medicare eligible and want to self insure, see if you can enroll in a Medicare Medical Savings Account plan. This is similar to an HDHP/HSA combination, but it’s funded by your Medicare part B premiums. It is basically equivalent to self insurance, but preserves your ability to switch to Medicare or Medicare Advantage without a late enrollment penalty.
https://www.medicare.gov/health-drug-plans/health-plans/your-coverage-options/MSA
— There was once an odd quirk in Medicare that I rarely see discussed – I don’t know if it still exists. I thought it went something like this — if you were taking Social Security and Medicare, your annual Medicare increases were capped below SS. (So that MC didn’t eat up your SS.)
However, If you were taking SS but not MC, Medicare premiums were uncapped. So why would you care about premiums you are not paying? Because when you join MC, you enter at the stepped up level. (There may be a similar dynamic with prescription coverage.)
— Related to that, there is a tendency for some of the better Medicare parts to quietly disappear for new people. Not technically an unpopular cost increase, just no longer available.
— IMHO, self insurance depends on your age, how much you have and how much of your personal assets you want to put at risk. A starting analysis would include an honest look at your parents and blood relatives age at death and causes. Next, I would Google “medical bankruptcy.” The older you get, the harder it gets to recoup a large loss.
— “I am healthy now” and “I take good care of myself” are often put forth as conferring immunity to future disasters and avoiding the need for taking precautions. Before I could drive, I read my uncle’s Pop Sci and Pop Mech magazines. The auto writers always warned that “90% of tire failures occur in the last 10% of tread life.” The Past does not always predict the Future, even when properly inflated.
JMO. DYODD.
I love Medicare. I pay for one of the covers-everything Medicare supplement plans (Medigap), so I have never paid anything out-of-pocket to a provider. A little over $2000 was deducted from my social security last year to cover Medicare parts B and D premiums.
The reason you need health insurance is to get the negotiated rate for services. Self-insurance is not an option. Medicare rates cut down (the enormous) raw fees for services by a huge percentage. Of what remains Medicare pays some and my secondary (Medigap) insurance pays the rest.
I chose the expensive Medigap plan so I would never be in the position of having to decide whether to get care based on the cost. In my experience, all providers accept Medicare and it’s very little to zero hassle to use.
Start preparations to enroll in Medicare before you are 65. Meet with an insurance agent in your region. You will get good advice and avoid gotchas. That’s also the time to discuss Medicare supplement and advantage plans. A good agent will help you navigate the messy tangle of decisions.
My thoughts on the health insurance mess:
It seems to me it would be very easy to convert Medicare to a national insurance plan. The bureaucracy and machinery are already in place. Charge a premium to people under 65. In particular, I would like to see children covered. There are a lot of children in America who are undernourished and in need of healthcare. It’s criminal neglect. Many people will interpret my thoughts as political statements. To me, they are not. I’m pragmatic.
R2S said: “It seems to me it would be very easy to convert Medicare to a national insurance plan.”
R2S, I suggest you talk to a few primary care providers and ask how their practice would work if 100% of their patients were on Medicare. The answer you will get will be something along the lines of: “I will just close my practice because Medicare reimbursements do not cover the costs to keep the doors open.” All of the practices I am aware of that accept Medicare need some percentage of non-Medicare-Medicaid patients to make the practice viable. Ditto for hospitals.
So without commenting on whether a national government insurance plan is a good idea or not, if it is implemented without changing reimbursement rates, something is going to break.
Related to this is why some doctors do not accept any Medicare patients.
Tex-
Of course, you’re right about the reimbursement rates being unsustainable. I remember having a minor outpatient surgery some years back where the surgeon was paid $600 after Medicare whacked down his fee. It seemed unlikely to me that a highly-skilled practitioner could be expected to stay in business on so little.
Seniors on Medicare get a big benefit and it costs the government plenty. A more general use of Medicare would have to be sustainable. I don’t have a clue what the premium and reimbursement structure would look like. I can’t imagine it being any worse than what a self-employed person has to pay for private coverage as things are now.
I shouldn’t have stuck my foot in that sticky topic. I’ll never get my shoe back.
Tex–Providers make less for care delivered to Medicare Advantage enrollees than those covered under commercial insurance and traditional Medicare. That’s why many hospitals are dropping certain Advantage plans, and not just in California, but all over the country.
For more details: https://guidehouse.com/insights/healthcare/2023/the-advantage-in-medicare-advantage-for-providers#:~:text=Providers%20make%20less%20for%20the,commercial%20insurance%20and%20traditional%20Medicare.
All good points Private, but probably none of us know any MDs that aren’t 1%ers or 1%-bound.
As a value proposition, U.S. medical care, like U.S. education, is about the least competitive on the planet.
Medicare A should be free, no? Part B cost is based on income…I self-insure for life insurance but not health!
At John Mauldin’s recent investor conference, one of the speakers was Joe Lonsdale. John writes in his latest newsletter:
“Joe Lonsdale has had the advantage of watching AI develop while also knowing the main players. He co-founded Palantir and now runs 8VC, a large venture capital firm with investments in AI and many related disruptive technologies. No one knows the AI big picture better than Joe.”
Later in the newsletter John provides this interesting excerpt from Joe’s presentation:
“Healthcare billing is a huge area. We just talked about customer support earlier. Healthcare billing, John, just to give you an example. There’s about a quarter trillion dollars a year, by most estimates, spent on healthcare billing in the US economy, $250+ billion. And there’s people sitting in office parks and suburbs and there’s millions of them and there’s tens of thousands of rules per insurance company and thousands of insurance companies. It’s a mess. They call it ‘revenue cycle management’ because you’re cycling back and forth trying to get these things accepted. And it turns out that using AI could make the workflow… so far, we’ve proven it at least twice as efficient, I guess the margins are going to go up three or four times.”
Margins for who? Not the end consumer, for sure.
After looking at this FRED chart of the HY spread,
https://fred.stlouisfed.org/series/BAMLH0A0HYM2#0,
I added the FFER (Fed funds effective rate). The combination shows that a rising/spiking HY spread concurrent with or following a FFER rate hiking cycle and plateau has been a solid recession signal three times running.
Someone here recently discussed the currently tight HY credit spread. I would be interested to read a discussion on this topic with a focus on signs and symptoms that precede a widening.
To all those that served in the service
Thank You
First year RMD for me.
My question to some of you,
Is it wise to max out my 2024 1099-R Distribution as long as we stay in the 12% bracket? We file MFJ.
Even though I’m a tax preparer, I may be missing other factors.
Some other ideas, I came up with, was to get munis instead of CD’s or preferred in my taxable accts, or, buy an EV and use the tax credit up by increasing my distributions. Originally, I thought of buying a rental property and use the phantom losses to offset up to 25K of distribution.
But, prices and interest rates nowadays killed that idea.
Sorry, if I lost some of you.
At 72.5 yrs of age, my mind isn’t as sharp.
I’m also in the 12% bracket and MFJ. For the last several years I’ve been taking my RMD and then enough additional distribution to my Roth that my taxes peg out at the top of the 12% bracket. My wife’s RMD hasn’t started yet because she’s younger. The reason for this is that the Trump tax changes will end in 2026 and our taxes will increase at that time, so I’m trying to get as much as I can into the Roth and shrink my IRAs to reduce future RMDs. Also, by growing the Roth I’m increasing my contingency money for big unplanned expenses in the future, so that I wouldn’t be forced to take a big IRA withdrawal for them and end up in the post-Trump 25% bracket.
Every year in late December I calculate/estimate our taxes for the year and then do a final IRA-to-Roth withdrawal. So far its worked out well, paying at most $100 in the 22% bracket.
The question, of course, is will Congress extend the Trump tax law? That’s so uncertain (shall I say chaotic?) that I’m not placing any bets and am just going with the current state of affairs.
Regarding our taxable account, I have most of it in qualified-dividend preferreds and pay no tax on their income in the 12% bracket. This also frees up more tax capacity for moving securities from the IRA to the Roth in the 12% bracket. The other taxable securities are a few corporate bonds I can’t sell because they are illiquid and/or underwater and I don’t want to take a bigger loss on them.
I looked at buying munis and figured out that we’re money ahead in the 12% bracket with qualified preferreds instead. Regarding EV’s, I’m an old hydrocarbon guy with no interest in them. We owned rental property (8 units) when we were much younger and found it was a pain in the rear to manage it and deal with tenants. Zero interest now in returning to that.
Good luck with your tax planning, I hope this helps – Coaster
Regarding military service, many companies offer discounts to veterans. Today, I bought a 12V marine battery at Napa Auto Services and received a $25 discount. It never hurts to ask.
IRA Charitable Rollover Gift Annuity Plan
https://www.redcrosslegacy.org/how-you-can-give/giving-and-generating-income/ira-charitable-rollover-gift-annuity-plan
I did this in 2023 with a portion of my RMD. You can get some decent rates. Lots of non profits do this. Is it a good deal? Depends on your tax bracket and how long you live.
Does anyone own CEF ‘ADX’ (Adams Diversified Equity)? If so, perhaps some good news:
https://www.adamsfunds.com/news/adams-diversified-equity-fund-announces-initiatives-to-enhance-shareholder-value/
Distribution policy changes and tender offer possibilities
It looks like another win for Boaz and Saba Capital…. BlackRock’s nemesis….
https://archive.ph/PkAGN
https://www.sec.gov/Archives/edgar/data/2230/000110465924010735/tm241400d1_def14a.htm = annoucement of annual meeting which was in March – “THIS MEETING IS VERY IMPORTANT because Saba Capital Master Fund, Ltd., a hedge fund managed by Saba Capital Management, L.P., a closed-end fund activist, has announced its intention to seek election of seven nominees to the Board at the upcoming meeting. If all of the hedge fund’s nominees are elected, they will replace the entire current Board of Directors of the Fund, which could result in material changes to the Fund.”
2WR, Saba Capital got involved in a couple other CEFs of mine (FEN and FIF) earlier this yr. Resulted in a very nice capital gain as the pull to NAV before those funds changed to an ETF. Wouldn’t mind them meddling a little with some Blackrock CEFs in my possession either.
……I have an outsized position in ADX, not exactly sure what to think of this change to heavier distribution. Market seemed to like it today, but in my opinion it looks like they may have overshot it some. This one has been around since 1929. I would be loathe to mess with its success. 8% distro seems out of line for this market tracker CEF. May have to trim after the inevitable pull to par.
I’ve admired Boaz and also Phil Goldstein for their very similar activism strategies…. My lazy man thought process was I’ll just let them do the activism and I’ll participate thru their funds – no need to try to pick the targets… Trouble is, at least for BRW, it hasn’t worked. Boaz has had some success in hitting his targets, and he’s generated a lot of publicity for himself, but I’m not seeing much performance over the last 6 months. I’ve owned it since Sept ’22 and even over that period of time, there’s not much to crow about…….. but congrats to you for being in the targets.
I looked at some long-term charts and have these thoughts. Please feel free to ignore my ramblings. A little knowledge is dangerous.
Speculation: I can project the SPX chart from post-WWII to a target of 7000-8000. That fits with Ed Yardeni’s call for +50% by end of decade.
Fact: SPX bottomed in 1974, years before the Fed killed inflation, and the rally continued until 2000. Speculation: Once credit expansion (1970s) or deficit spending (1940s) pumps a lot of permanent new money into the economy, the result is an enduring asset rally. Rhymes with today.
Fact: OTOH, bonds didn’t bottom until 1981 and then rallied until 2020. Speculation: The current bond bear might continue for more years with yields staying high and inflation remaining problematic.
Fact: Gold rallied with stocks until 1980, about the time of the bond bottom. After that, gold was in a bear mkt while bonds were in a bull.
Rocks
Re 1981 – 2020 (41 years) bond rally and length of the bond bear.
The famous book (and most boring book ever written…) A History of Interest Rates details the history of interest rates over a 4,000 year period. One of my key takeaways from the book is that interest rates move in very long term cycles that are generational in nature. So your speculation that this is going to be a long bear market is consitent with the conclusoins of this book. Well worth it for anybody who looks at this site IMO. I encounted the book from one of James Grant’s books.
https://www.wiley.com/en-us/A+History+of+Interest+Rates%2C+4th+Edition-p-9780471732839
picked up another batch of the recently auctioned 5yr TIPS @2.20 real yield.
pig-
Can you relieve my ignorance and explain why your TIPS are as good as or better than other fixed investments of similar maturity?
Rocks,
I’m not sure I can really say they are as good or better. My goal is to eventually move 20% of my capital to a TIPS ladder. So these moves are simply as a result of that goal. Be that as it may, relative to other AAA rated investments, if inflation were to plug along over 3% or higher then clearly it was a decent competitive winner. My other 5yr comparable investments might be AA+ rated TVE,TVC babies which currently fluctuate 5.25 – 5.5% YTM. TIPS are just my insurance policy that we don’t go back to “transitory inflation”. I know alot of people are spooked by the low coupon but that doesn’t bother me as I’m well covered on what I need income wise, just moving as much as I can to safer places.
I started to re-buy a position GLPRD. I know I said I was off the the stuff. Here is what I do know so far. Found the info from FIDO news feeds.
1. SEC sent an informal inquiry
2. CEO bought 2k shares @ $84.82
3. Interest payment on tap .2656 ex 5.31
4. CY 7.14% @ $14.59
I haven’t exhaustively looked at all the hankie pankie. A lot of it seemed WellFargoEsque. I do agree with the III’er that previously said he had some doubts on some of the claims. I believe he was also an industry type.
I had an insurance license and sold mostly fixed annuities with it. Some of the claims regarding the accounts and alleged phantom customers are possible, but would require collusion of quite a few actors. I guess if your own house was that toxic in that type of culture you may be able to pay off other entities, but it seems more of POA to me.
Isn’t there easier ways to steal money…just sayin’. If compliance misses you the first time they usually will find out from audits and/or other internal controls. I am not a compliance guy, but they seemed like they were always up your wazoo even if you weren’t doing anything. It does take time though to comb through especially when there are many layers to the cake.
I briefly looked at their latest 10q report. I didn’t see any raging fires….yet. The MD&A did mention Fuzzy and the gang. Management seems to call bs. The truth is probably somewhere in between.
Moody’s updates on a couple insurers:
1. upgrades FG (has baby bond FGN).
2. affirms BHF [4 pfds (BHFAO, BHFAP, BHFAN, BHFAM) and baby bond
BHFAL].
https://www.moodys.com/research/null-Moodys-Ratings-upgrades-FGs-LT-issuer-rating-to-Baa3-Rating-Action–PR_1000009566?cid=GAR9PTU7VKT2671&emailToken=eyJ0eXAiOiJKV1QiLCJhbGciOiJIUzI1NiJ9.eyJVc2VySWQiOiJkYzVkYjczMC01NTBiLTQ3ZjctYjhjZi05NzY2ZjAxZmU0MzMiLCJEb2NJZCI6IlBSXzEwMDAwMDk1NjYiLCJjcmVhdGlvbkRhdGUiOiIyMDI0LTA1LTIyVDE5OjUxOjQ4LjI1MjQxNDEtMDQ6MDAiLCJleHAiOjE3MTY2ODExMDgsIlVzZXJOYW1lIjoiY3BhbWlrZW1iYUB5YWhvby5jb20iLCJVc2VyVHlwZSI6IjIifQ.tFZmyY83iBc7kqRoUtVZXQeb3HQO_6c9HXcQfSNpEmI
https://www.moodys.com/research/null-Moodys-Ratings-affirms-Brighthouse-Financials-ratings-Baa3-senior-unsecured-debt-Rating-Action–PR_1000009557?cid=GAR9PTU7VKT2671&emailToken=eyJ0eXAiOiJKV1QiLCJhbGciOiJIUzI1NiJ9.eyJVc2VySWQiOiJkYzVkYjczMC01NTBiLTQ3ZjctYjhjZi05NzY2ZjAxZmU0MzMiLCJEb2NJZCI6IlBSXzEwMDAwMDk1NTciLCJjcmVhdGlvbkRhdGUiOiIyMDI0LTA1LTIyVDE3OjMzOjUxLjUzMDAyNi0wNDowMCIsImV4cCI6MTcxNjY3MjgzMSwiVXNlck5hbWUiOiJjcGFtaWtlbWJhQHlhaG9vLmNvbSIsIlVzZXJUeXBlIjoiMiJ9.W680Mmc66tI0Wa4VPAayMe8VsR3Zg0vFEbd4Q051Sws
good comment .. bhfal/iglb pair trading near fair value (3yr horizon)
good comment .. bhfal/iglb pair trading near fair value (3yr horizon)
bhfan/pff pair went from 2 sigma cheap in may 2023 to 2 sigma rich in april..currently 1.5 sigma rich
mj-
I’m interested in how you calculate your various relative performance ratios, such as bhfan/pff. The expense ratio for PFF was 0.46% last time I checked.
Carson Block/Muddy Waters shorted BXMT https://www.blackstonemortgagetrust.com/ in Dec at 22ish. New low today 17.
Larger implications?
Once upon a time (before COVID), commercial mortgage was a great place to be. Much more reliable than residential. So, I held BXMT for a bunch of years.
Got in mostly in the mid $20s, but bailed in early 2022 at about $32.
Commercial real estate just didn’t seem to be a great place to be anymore, but I didn’t have the nerve to short it.
Good reminder. Today a AAA CMBS bond took a loss and SREIT also put a severe limit on exists…. the SREIT news came out last week.
https://www.bloomberg.com/news/articles/2024-05-23/cmbs-buyers-suffer-first-loss-on-aaa-debt-since-financial-crisis
Muddy waters made a good call and yes the implications seem broader….
in ‘juicing cash’ category w small buys, got some SCE.PG at a 6.5% yield today which is about 1.2% over SGOV and a little more SR.A for 1% over SGOV which is my primary cash parker. Given my low tax bracket due to many years of planning but now w SS having to pay inc tax again, taxable equiv yields to me are even better to compensate for the risk.
While I don’t consider them ‘flips’ per se and maybe they are not comparable in quality, these replaced MET and PSA pfds w lower yields and for small pennies gains over what I bought them at. Holding in RothIRA. Also a ‘gridbird’ tie my hands move a little, I have been far to tempted to buy things lately! lol. Amazed at how many pfds I have now but happy w them. DYODD Bea
Bea, thanks for sharing. I too have a few preferreds. Talking to my Fidelity planner today I think it amused her seeing how many I hold and how often I trade. Not one of her “normal” clients. I educated her and the T Rowe rep on a 3 way call about our shared experiences here on what has happened with TRINL
Seems I have 8 shares floating in limbo and the T Rowe rep has to call Pershing to get it sorted out.
We get everything settled in with the transfer I will be happy with generating 6-1/2% income with a mix of Grid’s utilities and other holdings.
Hi Bea,
FWIW – the SCE,PH started floating this quarter. It still shows on QOL and schwab at its old fixed rate, but it will be paying much higher (prospectus says three-month LIBOR plus a spread of 2.99%) – I can’t recall what the exact number is off the top of my head, but IIRC its over 8% (sorry – I can’t look it up at the moment).
A potentially good deal if you can get it at a good price, but I suspect it will be called before very long.
For those scoring at home which I am one since I own a slug of the now floating H, goes exD June 14 at a nice 54.82 cent quarterly dividend.
thanx Private. I have to settle down and do a portfolio analysis this long weekend see where I am at on things. I am up to 17 pfds now. Maybe some more tweaking is in order. It may be one of those years where 7-8% is good w capital intact, certainly not bad, we’ll see. A lot easier w good cash/cash like rates out there.
Maybe the Pirates won’t blow two big leads too but I doubt that !! omg. thanx again Bea
I see CFG-D has announced redemption. While not as juicy, I guess SCE-H is a good place to roll funds, but this will probably be called soon too.
I decided to take SS this year as well – I’m 64 so did it early based upon my “break even” cost analysis. It’s an even $3200/month so not insignificant and will be taxed by the Feds at 85%. But, at least my state (MD) won’t tax it. I did not do as well planning as you to keep me in a low bracket but I am working it the best I can. I have been adding SR-A as well as it has been dropping – SCE preferreds I do not own any but am planning to look now.
Yazzer, who were you responding to?
I am almost your age, trying to decide about SS, and I would love to see someone’s planning process.
My planning process was simple. Take SS early so I don’t have to touch my IRA/Roth IRA for years to come. Growing my investments is worth more to me than passing up SS to get a bigger chunk later. I don’t have high taxable income.
Martin G: pretty much my strategy as well. Offset having to draw off your other accounts as long as possible – at least till RMD at age 73.
@Martin G, my decision was the opposite. I postponed until age 70.5 to get the guaranteed 8%/yr benefit increase, and was willing to draw down retirement accounts to do that. Main decision factors:
1. My wife’s family is much longer lived than mine (typically mid 90s)
2. My target portfolio cash flow is 5.5%
My mom is 94 and mother in law made it to 95, so my better half is convinced that waiting to age 70 is best option. Pages 9-12 of this report may help some.
https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/retirement-insights/guide-to-retirement-us.pdf
(Verbatim from 11/23/22. This describes the most common financial planning error for claiming SS benefits. Obviously nothing is 100% certain because life expectancy is unknowable, so you have to go with the odds.)
Robinhood said: “A study like this lacks one important piece of information to determine what is the best age to take your social security, the age that you will die.”
RH, this is 100% correct for an unmarried individual, but is NOT correct for a married couple. In that case you have to know the death date for BOTH. The most common case I see where this is a factor is the following:
Married couple roughly the same age
Man had higher lifetime income, hence higher SS benefit
Woman had lower income, hence her SS benefit is lower
Man’s life expectancy say is 77 years
Woman’s life expectancy is say 90 years (One of my accounts is 97 BTW)
When the man deceases, the woman’s benefit steps up to the man’s, so if the man claimed early, say 62.5, the wife will get a lower benefit for 13 additional years.
This is why I strongly recommend use one of the SS claiming strategy calculators. Kotlikoff’s firm is the gold standard but will cost you a little. Here is a free one that is credible.
https://opensocialsecurity.com/
You must click the “Certain situations require additional input” which allows you to put in any life expectancy you want.
I have no affiliation with this website or the individual that runs it.
Appreciate the links, Tex
One friend suggested my wife file as soon as possible, then switch to drawing on mine later, but it’s complicated. I will look at the site you mentioned, but I am not afraid to spend a few bucks if I get better advice.
I have MUCH higher lifetime earnings than my wife, but I haven’t paid anything into SSA in over 10 years (how I have businesses structured) but she will likely outlive me by decades – so its a particular mess for us.
I remember someone a couple of years ago talking about how timing social security can affect medicare premiums (or something close to that)? Sound familiar to anyone?
Doesnt sound familiar to me, Private, as no matter how long I wait, I doubt my SS will ever cover my Medicare premiums. Thanks to recent inflation I am able to draw almost $250 a month at 62. Thank you WEP!
Sheesh, grid! You guys are all so young.
Grid – I only signed up for Medicare part A, which is free to me. My NASA retirement allows me to keep their insurance which, for me being single, is $152/month and covers more than Medicare Part B which would cost me $164/month at age 65. The former is automatic (I cannot opt out, nor would I) but no need to pay for both that cover the same basic areas of health care. I really do not need Part A but, it’s free and mandatory relative to my pension.
Yazzer, I am in good shape for next 5 more years getting free almost 1980s like health insurance piggy backed off my GF’s company. Medicare and all that crap will be a step up in cost, as I wont be able to stay on company insurance after 65 like you are.
yazzer Some people might wonder about Madicare part B, I ran across this article yesterday. Doesn’t apply to most people, but I know of people here in Calif. who moved at retirement to these planned retirement communities that were popular in the 60’s Developments in rural areas 2 to 3 hours from emergency and major medical centers. Most residents pay a annual fee for the life transport, unfortunately a few years back one of these companies went BK. I mention a few that might be familiar or you can see from Google maps how remote they are. Maybe no worries when you are healthy. Sea Ranch, Hidden Valley Lake, Shelter Cove, Graeagle etc,
https://abcnews.go.com/Health/medicare-part-bs-shield-patients-family-owes-81000/story?id=107638298
Tex – THANKS! Good points. I am single and my GF and I have no interest in getting married again so, my ‘easy’ decision to take SS now may not apply to married couples. All in all, the analysis and trade-offs are pretty much unique to each situation.
“I am single and my GF and I have no interest in getting married again so, my ‘easy’ decision to take SS now may not apply to married couples”
Your GF might collect some nice SS benefits on your record if you did get married, for example if your record was meaningfully better than hers for payments made over the years. There’s also the spouse’s ability to collect on the deceased spouse’s record to a lesser extent IIRC, which could still be better than their own and would continue that way for their life.
An old guy with a nice SS record could be quite valuable marriage material, either to another retirement age older women, or to a much younger one if you’re still up for having some extra kids (who would receive some SS benefits until they were 18).
Too bad sscritic over at Bogleheads left (due to their excessive and annoying forum moderation, and for telling people they were wrong when they were!), as he was an excellent resource for these types of questions. A few things have changed but you can find older answers here:
https://www.bogleheads.org/forum/search.php?author_id=3249&sr=posts
He might be elsewhere on the Internet but I don’t know where currently.
I had a friend who never married. At his GF’s death, NJ deemed they had a common law marriage. He had to give 1/3 of his account to the DB. IF they had known a will would have prevented many problems.
I told him “Dont open your mail, answer the phone, or open the door”….To his delight……He was able to string him out for years!!
As for SS spousal benefits you should check. A simple no cost pre nep can prevent problems for you, and may give her great benefit down the road
Private, my planning process for SS has been simple. My wife (who will soon be 66) and I (soon 63) have delayed taking it as I have been managing to keep our taxable income low to not only limit income taxes, but more importantly to take full advantage of the Obamacare grift.
I had set aside a number of years of living expenses after retiring in money market / CDs and just have drawn down on that. Then each year knowing my dividend and interest income, I have tried to manage my capital gains to keep my taxable income right below one of the Cost Sharing Reduction levels. to also limit any out of pocket costs. Basically getting nearly free healthcare and limiting out of pocket costs has been extremely worth it.
Trying to squeeze one more year out of it and take advantage of the government’s largesse and recoup some of the many taxes I paid over the years
WHEN to take SS focuses on your life expectancy. If you might live past 80 you’re probably best delaying as long as possible.
i’m delaying mine. Yes I might collect more by drawling it asap, but my spouse may get much more down the road if I delay….To me SS is for longevity insurance.ONE thing is for sure, I’ll be very PO if I die w/o having collected a single check!!
Mav, your Obamacare grift made me chuckle. I got the shaft end of that grift. My $60 a month underwritten HSA compatible $5000 deductible from BC/BS, became a $750 a month with $7500 deductible within 2 years after if shut my plan down I had had for 5 years.
Although I am now getting great free health insurance now through my GF’s employer, my point is I may pay up and just get the robust Medigap plan. Because I am already used to paying a lot for several years. And even this would be cheaper than the ACA without a $7500 deductible to, ha.
Private:
Here’s some of my own personal logic with regard to my decision to go ahead and take SS now instead of waiting to age 70.
I paid pretty much max into SS over the last 30 years so I am eligible to get max back for whatever I can get based upon my age. I did a rough, simplistic break even analysis and came up with an age of 81 before I would have been better to wait. That was just cash flow of what I can get now versus what I can get then w/o any consideration of investing those funds. (BTW – I have them withhold NOTHING from my monthly check and pay quarterly taxes as appropriate).
However, for my situation, the SS funds are “gravy” that I will use for leisure and fun by maybe drawing off some of it as needed. But, the bulk of it will be invested conservatively into preferreds, BBs, CDs, etc. with, say, a 6-7% return so that effectively pushes my break even analysis further out into my late 80 or even 90 years old. So, here’s my personal rationale in the key points I used to decide:
(1) The older one gets, the potentially less one can do so I’d rather have the $$$ upfront to use for “fun things” I want before I get too old to fully appreciate said fun things!
(2) Break even is close to age 90 when you consider putting that upfront money to work now and increasing the nest egg up front. Like some others have commented here, I come from a line of long livers (pardon the pun) – my dad is 90 and my mom 85 and still very active – but still, I am convinced that have use of that money now will more than outweigh any bit extra I might get post age 70. BTW – I am an active runner, logging 20-25 miles a week and just ran my 2nd 50K trail race early this year so I don’t plan on leaving anytime soon!
(3) SS $$$ go away at death (as does my pension) – you cannot leave any of it to your heirs, etc. So, I would rather collect and save that money early-on given the uncertainty of when it might end, and use it to help fund my grandkids college, etc. I can collect 3200x12x6, almost a quarter million gross dollars, by the time I hit age 70 to reserve for such purposes.
(4) Alternatively, a different spin on (3) above is you can use the SS $$$ for regular needed cash flow and leave your personal retirement stashes alone for use later and/or disburse to heirs when the time comes. This is likely the ultimate way I play it – use the pension/SS for living expenses and save the taxable and Roth account incomes for “fun”. Hopefully I don’t even have to touch my more sizable traditional IRA till RMD time at age 73.
(5) This is always cited as a factor but, the uncertain availability of SS in the future. It’s solvency only lasts till 2033 as it stands now so what form will it take then? I doubt it affects us taking it now but you never know.
Anyway, I personally debated this in my own head a lot, listened to friends that are “wealth managers”, read up on the subject every which way but loose and decided to go ahead and take it when I retired in January at age 64-4, along with my NASA pension.
With a NASA pension, did you not get hit with WEP?
Anyone else have a Vanguard acct with either of 2 old favs around here:
SJIJ
PHX Phoenix Insurance 2032 quarterly bond
I have both in there, and both overnight have suddenly been valued at zero. I was wondering why the acct had suddenly dropped a couple of percent.
Grid and Azureblue I think you might have one or the other ?
Wondering if its just a Vanguard thing…
Adrian,
As long as they keep paying and Vanguard isn’t making you sell wouldn’t worry. But it’s telling you that they’re not thinking there is much of a market for these and will not let you buy, only sell.
Charles they very much will let you buy these issues. You just have to get past the McDonalds transfer employee and just have them get you to their fixed income specialist and then within 30 minutes you will have them if the price so motivates one to buy. The fact their computer screens arent pricing them in no way inhibits one from buying these as their sell quote would come from a 3rd party desk not their pricing even if there was one. They are not governed by expert market rules being they are on the bond desk. Or at least for now anyways. One never knows with certainty.
And then there was the idea of transferring them to a ROTH at zero– nice if you could get it.
I have done the zero value transfer to a roth before. I think you may need it to stay at zero across tax years (i.e Dec. 31). That is what I did – so it showed in the YE reporting at zero, but it may be doable on a shorter term (I haven’t tried it).
Private have you dont this with actively traded ones from bond desk? This may (or may not) be the same scenario, and I would be a little careful treading here on a transfer since they actively trade almost daily and with significant value.
Fair point Grid. I haven’t done it with something that trades regularly on the bond desk (or at least that I knew traded at the bond desk). Maybe I need to buy some SJIJ and try it.
My point was that I don’t think you can do the roth conversion at zero with something that has only shown at zero for a short period.
I did one that was at zero for a long time (across tax years) and it worked.
I tried another one that was reported at zero for a few months and it didn’t work (came into the Roth at a “last trade” value). It was OK for me because I needed to do Roth conversions anyway, but I was disappointed I didn’t get it across at zero.
Private glad it was you that brought it up. I have done it myself and it worked. But I am not licensed to give tax advice 🙂
Whoa Nelly, I just looked…I took a double ass beating in my Vanguard account. I dont open this one up much. My SJIJ and Phoenix Cos went to “zero” also I see.
Couple things here…They are not worth $0.00. Phoenix traded today at $18.25, right in its normal range.
https://www.finra.org/finra-data/fixed-income/bond?symbol=PNX3814338&bondType=ELN
Second of all it largely was inevitable. I have had SJIJ for almost a year and Vanguard had not changed the pricing of the issue since the day I bought it. So clearly their computers do not catch $25 baby bond pricing off their bond screeners. So this doesnt surprise nor bother me they list it as “nothing”, since their pricing was beyond stale anyways to what it does on a daily/weekly basis. Also keep in mind they are not valuing it as $0.00. Its just left blank. It may reappear or it may not, but its largely irrelevant anyways.
Brokerages do their own thing. TD had my AIC valued at nothing, and now that they transferred to Schwab they are magically worth something again despite not ever trading….And at a price it never traded at either mind you. Its all immaterial to me.
Grid – Are we talking about the bond CUSIP 838518AA6 matures 4/15/2031? I had mentioned a few days ago it periodically shows zero on the FINRA page. Just looked and it closed at $79.32 in my Vanguard Roth.
No, Dj, we are mentioning what used to be SJIJ.
https://www.quantumonline.com/search.cfm
It is a 2079 subordinated debt issuance, that was delisted and now trades on the bond desk with its own cusip number.
https://www.finra.org/finra-data/fixed-income/bond?symbol=SJI4882383&bondType=ELN
Its equal standing with the 2031 issuance, but SJIJ is still deferrable, while the 2031 is not now. They both are subordinated debt issuances. I own both FWIW.
Maybe one of these years I will get them straight…… or I may be going senile!
BlackRock TCP Capital Corp. Prices Offering of 6.95% Notes due 2029 – FYI
https://www.bdcinvestor.com/tcpc/202405/blackrock-tcp-capital-corp-prices-offering-of-6-95-notes-due-2029/
TCPC is paying almost 13%, but prob not as ‘safe’
I bot CCNEP 7.125 perpetual preferred at 21.76 (5/16 ex date) for 8.18 yld..the CCNEP/PFF pair was trading near 1 sigma cheap when I bot it but it closed at 23 which is near fair value …
P.O. box in Clearfield Pa. with a population of 6,000 people in 2022. ? mkt cap of 420 million some days less than 500 shares traded. Take your profits and run.
do you pick your investments by the population of the town they are located, market cap and number of shares traded daily?
No, but I do some research and having been born near there and with family in the area for over 200 years and knowing deer out number the residents I would prefer owning stock in a bigger regional bank.
Nothing amazing about this bank, but it has a solid operating history, looks to me like a well run small regional bank. Even more impressive, it was able to remain profitable AND maintain its dividend during the 08/09 financial crises. Great pickup for a buy and hold 8% qualified dividend.
Update on the Justin Bank Preferred Portfolio- (JBPP). One year ago on 5/22/23, I started the JBPP portfolio based on the excellent suggestion from Justin. Banks and their preferreds/babys were beaten down in part due to the failure of Silicon Valley Bank. Several other banks were viewed as being on the ropes and headed for imminent failure. I used a methodology to buy one preferred share/baby bond from each of 48 banks. The thought was that one or more might fail, hence go to zero, but overall the survivors would bounce back and outperform the broader preferred sector.
Happy to report that the JBPP DID outperform the broad preferred ETF index, PFF, which holds ~ 440 issues. Zero of the original 48 JBPP holdings went to zero, aka bankrupt. The JBPP one year total return was 22.8% compared to PFF at 11.4%, which is significant. JDPP outperformed PFF on 8/12 months, 75%, which is significant, but the tide might be turning. Long story short with a broad brush, bank preferreds are generally higher quality which means generally lower coupon yields which generally means they will fall further IF, long term interest rates like the 10 year US Treasury rise.
JBPP was intended to be a Ron Popeil, “set it and forget it” portfolio without ever making a trade. Issuers had a different opinion and have called several issues, forcing additional purposes in order to stay fully invested. Here are the changes to date:
PACWP became BANC-F when PacWest was purchased on 12/1/23
C-K was called on 11/15/23 (IRR= 8.56%) and replaced with WFC-R
FNB-E was called on 2/15/24 (IRR= 22.33%) and replaced with SYF-B
WFC-R was called on 3/15/24 (IRR= 5.85%) and replaced with NYCB-A on 3/18/24
FGBIP was bought with excess cash on 3/19/24
The addition of NYCB-A might seem controversial considering all of the negative stories about NYCB. Since the original thought was the entire bank preferred sector was beaten down and would eventually return to full value, the NYCB buy is consistent. Also important to note that the original picks were “quant based” and no personal judgement about default/bankruptcy likelihood was used. Yes, it risks a loss of $18.17 which is about 1.75% of JBPP, so it will not be fatal if it does not make it. OTOH, if it does make it the upside would be significant. Note that out of the current 49 holdings, NYCB-A is the only one with a loss, being -2.49%.
Since inception, the portfolio has received ~ $65.29 in dividends/interest which is 7.49% based on the original purchase price. The brokerage currently allows automatic dividend reinvestment on 40/49 issues. The largest gainer is TFINP which has 1.0904 shares for a 9.04% increase. In that sense, this is a dividend growth portfolio through an unconventional way. This is something you cannot do with conventional bonds and/or CD’s which is particularly important when you are receiving 20 to 50 cent payouts. You would need to have about a $50k portfolio to receive $1k payouts per quarter to buy 1 CD per quarter, all with some hassle compared to DRIPing.
BOTTOM LINE QUESTION is whether JBPP is still investable today? I think it depends on your macro forecast for long term, aka UST 10 year rates. If you think they are going higher, I would not buy this portfolio OR any other broad based preferred one. If you think long term rates are headed lower, I WOULD buy the JBPP today over a broad based PFF type. Two reasons: lower rates help these lower coupon issues PLUS, they also help the survivability of banks. This might lead to more bank issues heading towards fair value.
There are two other scenarios where JBPP might suffer if multiple banks go belly up.
1. Long term rates go higher, commercial real estate gets marked down further resulting in more commercial loans defaulting. In additional the banks that hold a lot of low coupon yield bonds on their books have to mark them down further. My personal opinion is that the Fed/Treasury is hades bent on NOT letting this happen.
2. Long term rates go at LOT lower, due to the country entering a severe recession. In that case, all kinds of bank loans default at a higher rate, causing more small bank failures. Recall that Too Big to Fail banks will be just that and not allowed to fail, but as we have seen, smaller banks are not protected. My personal opinion is that the Fed/Treasury also is hades bent on NOT letting this happen.
Obviously we hold all of these issues since this is a real money portfolio. We do not plan to sell any issues come hades or high water. If that changes I will make a post. PS, we were literally in the middle of Hurricane Harvey and did NOT sell anything, but that is a story for a different time.
This does prompt the question: What would cause us to sell JBPP? Worth some thought, but defer for the sake of brevity.
When you look at the detailed individual holdings, something really stands out IMO. It is pretty obvious in hindsight, but I did not highlight it BEFORE the original purchases. The best performers were the issues most likely to go BK at the time, whereas the worst performers, i.e. lowest gain were least likely to go BK. Poster children for this are PACWP which became BANC-F is up 129.9% and at the opposite extreme is JPM-M which is only up +4.9%. Stated differently, investors forecast ~ 0% probability of JP Morgan-Chase going belly up while assigning much higher probability ~ 50-70% for PacWest Bancorp and Valley National to go BK.
PS, I am working on a different, non-bank, real money diversified 1 share each portfolio which I will post/track if there is any interest.
Current holdings in a “CSV” format for ease of importing into a Google Sheet or Excel Spreadsheet. (I previously posted detailed instructions on how to do each of those imports.)
Header row:
Ticker, buy date, # of shares, pref/baby, type, coupon yield, total return, comment
BANC-F, 5/22/23, 1.07, Pref, Reset, 7.75%, 129.9%, Changed from PACWP on 12/1/23
VLYPP, 5/22/23, 1.082, Pref, FixFloat, 6.25%, 48.7%, FF effective 6/30/25
DCOMP, 5/22/23, 1.085, Pref, Fixed, 5.5%, 42.6%,
ASB-F, 5/22/23, 1.082, Pref, Fixed, 5.63%, 39.5%,
EFSCP, 5/22/23, 1, Pref, Fixed, 5%, 39.2%,
CNOBP, 5/22/23, 1.054, Pref, Reset, 5.25%, 39.1%, R effective 9/1/26
TFINP, 5/22/23, 1.09, Pref, Fixed, 7.13%, 37.2%,
UCBIO, 5/22/23, 1.079, Pref, Fixed, 6.88%, 35.8%,
SNV-E, 5/22/23, 1.067, Pref, Reset, 5.88%, 33.1%, R effective 7/1/24
ZIONP, 5/22/23, 1.059, Pref, Variable, 5.51%, 32.8%, V effective now
WAL-A, 5/22/23, 1.067, Pref, Fixed, 4.25%, 32.2%,
FHN-F, 5/22/23, 1.077, Pref, Fixed, 4.7%, 29.7%,
MBINN, 5/22/23, 1, Pref, Fixed, 6%, 27.5%,
FULTP, 5/22/23, 1.079, Pref, Fixed, 5.13%, 26.4%,
GS-A, 5/22/23, 1.074, Pref, Variable, 5.55%, 25.7%, V effective now
KEY-K, 5/22/23, 1.074, Pref, Fixed, 5.63%, 25%,
HWCPZ, 5/22/23, 1, Baby, Fixed, 6.25%, 24.5%,
WSBCP, 5/22/23, 1.074, Pref, Reset, 6.75%, 23.4%, R effective 11/25/25
HTLFP, 5/22/23, 1.074, Pref, Reset, 7%, 23.3%, R effective 7/25/25
MSBIP, 5/22/23, 1.082, Pref, Reset, 7.75%, 22.9%, R effective 9/30/27
TFC-I, 5/22/23, 1.055, Pref, Variable, 6.22%, 22.2%, V effective now
WTFCM, 5/22/23, 1.074, Pref, FixFloat, 6.5%, 21.9%, FF effective 7/15/25
AUB-A, 5/22/23, 1.06, Pref, Fixed, 6.88%, 21.9%,
CCNEP, 5/22/23, 1.06, Pref, Fixed, 7.13%, 20.5%,
ONBPP, 5/22/23, 1, Pref, Fixed, 7%, 19.8%,
CUBB, 5/22/23, 1, Baby, Fixed, 5.38%, 19%,
FCNCP, 5/22/23, 1.048, Pref, Fixed, 5.38%, 18.9%,
OZKAP, 5/22/23, 1.073, Pref, Fixed, 4.63%, 18.7%,
RF-E, 5/22/23, 1.066, Pref, Fixed, 4.45%, 18.1%,
WAFDP, 5/22/23, 1, Pref, Fixed, 4.88%, 17.4%,
WBS-F, 5/22/23, 1.052, Pref, Fixed, 5.25%, 17%,
TCBIO, 5/22/23, 1.078, Pref, Fixed, 5.75%, 16.5%,
WFC-D, 5/22/23, 1.045, Pref, Fixed, 4.25%, 16%,
SYF-A, 5/22/23, 1.084, Pref, Fixed, 5.63%, 15.7%,
FITBO, 5/22/23, 1.057, Pref, Fixed, 4.95%, 15.4%,
HBANP, 5/22/23, 1, Pref, Fixed, 4.5%, 13.8%,
CFG-E, 5/22/23, 1.066, Pref, Fixed, 5%, 12.7%,
MS-O, 5/22/23, 1.06, Pref, Fixed, 4.25%, 12.2%,
COF-N, 5/22/23, 1.049, Pref, Fixed, 4.25%, 10.8%,
CFR-B, 5/22/23, 1.063, Pref, Fixed, 4.45%, 10.7%,
FGBIP, 3/19/24, 1, Pref, Fixed, 6.75%, 10.7%,
MTB-H, 5/22/23, 1.045, Pref, FixFloat, 5.63%, 10.4%, FF effective 12/15/26
BOH-A, 5/22/23, 1, Pref, Fixed, 4.38%, 10%,
USB-Q, 5/22/23, 1.062, Pref, Fixed, 3.75%, 8.3%,
STT-G, 5/22/23, 1.043, Pref, FixFloat, 5.35%, 7.9%, FF effective 3/15/26
BAC-P, 5/22/23, 1.059, Pref, Fixed, 4.13%, 7.8%,
JPM-M, 5/22/23, 1.042, Pref, Fixed, 4.2%, 4.9%,
SYF-B, 2/20/24, 1.019, Pref, Reset, 8.25%, 2.1%, FF effective 5/15/29
NYCB-A, 3/18/24, 1, Pref, Fixed, 6.38%, -2.5%,
good project…tks for update
I would never have guess it would outperform PFF meaningfully and certainly would not have guessed a 22.8% return! Nice work.
ALL-B down over 2% today. Anyone see any redemption news?
*As we approach June; this is a big pay day month for preferreds. If anyone has anything on their watch list say trading in that $25.50 range that could fall to par or less on ex, please feel free to share.
*If you could pick only one single >6% yielder OTC trading Utility preferred right now, say with a century of existence etc., which one would it be?
*Does anyone hold the ABR preferreds? Yielding 8.6% range and still well under par. The common has half the outstanding shares borrowed right now for shorts.
*Incredible what difference a year or more can make. It seemed not long ago, we would have been jumping for joy for a 5% YTM with longer duration. Now I can’t even get remotely excited unless it’s > 6%.
*Also interesting paradigm right now. On one hand you have some 6%er preferred perpetuals still trading over par such as JPM or PRU bb etc. yet you can grab GAM-B on the cheap in $24.60s locking in @ 6.05%
Even though PSA and MET’s highest coupon preferreds can be had for under par right now, I won’t add more until we hit 6% but who knows if that happens.
Theta as far as OTC goes you really only are looking at a couple possible ones to begin with. The Ameren subsidiaries, The Eversource subs, a National Grid sub, Public Service New Mexico, PacifiCorp, and CMS. PacifiCorp concerns me but the others are interchangeable to me.
Really the best one is the best price per present yield and for me further below par the better. So it changes. I tend to tweak and trade to juice a bit and preserve capital. For example I dumped this week some AILLI at $84 at 6.14% to pick up AILIH at $65 past couple days at about 6.28%. Almost all my fixed perpetuals are either AEE ones of CLP. But that is largely because that was where I am rooting around in. AILLO for example is laying there for the taking at $68 which is 6.25%. But one may find a better price in another particular issue at any given time….or not. Depends on the liquidity. As most floats are tiny. For example AILIH I recently have bought only has about 45,000 shares issued 75 years ago. But the seller has left the room there as ask moved up over $66, there.
Grid – Nice moves on Ameren Illinois. Just to clarify, when you mentioned National Grid, you were speaking of NEWEN, correct? I have to go through your grocery list and pick two.
theta-
My spreadsheet informs me that these $25 stocks have ex-dates in the next 30 days and are trading $25-25.50:
CHSCM, GLOP-A, TRTN-B, SWKHL, SCE-H
I admittedly only follow about 5% of the “preferred world” but to add one to rocks’ list is a now again personal favorite relative price stability quality issue is BANFP. It is debt though and not QDI. It goes exD end of next month and stripped yield is about 7.2%. Past call since 2009 and matures in 2034.
Grid this is more of an illiquid issue. You had mentioned it a month or two ago so I put out a GTC order and it hit last week unfortunately at a higher cost then it was selling for last week. I ended up putting in a couple more orders and one got filled at a lower price.
I got my chunk in 25.20s, but I had some leftover change from selling a block, so I bought a 100 more at the higher $25.33 today and 100 more of SPNT-B at 25.08. Already had more than a full position of each, but for now until I find something that suits me better I dont care.
rocks2stocks – SWKHL is interesting. I didn’t realize they have been around since the 90s and their current debt load is only 13% of their market cap. I’m used to seeing these 9%+ yielders usually levered to the moon with the same amount of debt as their market cap or worse, never mind cash flows to support interest payments etc.
theta-
I can’t remember why I bought SWKHL in December. Do you know? It’s been hugging par since then. Never discussed here. (9% fixed BB due 1/31/27)
Investor presentation from SWKH on 5/17
https://app.quotemedia.com/data/downloadFiling?webmasterId=102691&ref=318336004&type=PDF&symbol=SWKH&cdn=82c25269b2131ef5c43b9a76b86cd574&companyName=SWK+Holdings+Corporation&formType=8-K&formDescription=Current+report+pursuant+to+Section+13+or+15%28d%29&dateFiled=2024-05-20
I know this isn’t the Annuity channel, but we quite a few “yield floozies” on this site (present company included).
The site listed that I am using was kindly posted by an III’er a while back.
ASPIDA
MYGA Annuity
6.15%
5 Years
A- AM Best
$100,000 (I believe)
10% WD After 1st Year
https://public-static-content.blueprintincome.com/app/product-brochures/aspida-advisory-myga-brochure.pdf
https://www.blueprintincome.com/
https://www.blueprintincome.com/fixed-annuities/products/details?paymentAccountTypes=%255B%2522savings%2522%255D&investmentAmount=100000&state=OR&page=1&id=44824
I like MYGAs. I have a 3/5/7 year ladder of them. I plan to 1035 them into SPIAs if the rates are right upon their maturity. Private pension.
MYGA definitely can fulfill a specific safe income need for people. If I could just buy one through my brokerage I would. But lazily I don’t want the hassle of dealing with another entity or having another account, so I wont be a player there even though I like the idea.
What is your impression on these AM Best ratings? Are they reliable?
They specialize in rating insurance companies. My view on them has been favorable over the years. You need to be aware of what they are rating though.
This scale is only for the claims paying subsidiaries to customers.
https://www.ambest.com/ratings/guide.pdf?_gl=1*znsrv2*_ga*NjI5NTg2MTE3LjE3MTY0MTkwNzk.*_ga_VNWYD5N5NL*MTcxNjQxOTA3OC4xLjEuMTcxNjQxOTA4NC4wLjAuMA..
While this one is for credit strength on a companies abilities to pay their debts
https://www.ambest.com/ratings/icrguide.pdf?_gl=1*rtrwww*_ga*NjI5NTg2MTE3LjE3MTY0MTkwNzk.*_ga_VNWYD5N5NL*MTcxNjQxOTA3OC4xLjEuMTcxNjQxOTEwOS4wLjAuMA..
More than one idiot blogger subscriber based racket writer on SA has confused the claims paying credit rating with the debt obligation payment strength of the holding company….They aint the same! A company can have A rated claims paying ability while having suboptimal debt payment financial strength.
Thanks Grid. I do remember this came up in SA at some point. Perhaps I’m remembering what you are describing, although I can’t recall the company we were talking about. All I remember is the company deregistered its babies and perps and all we had to go on were these Best ratings in the hopes that they would pay out. But as you said, has notta to do with claims paying ability. Although I would say, I’d be hesitant to send a lump sum to a group with great Best ratings but sketchy debt. Maybe thats just me.
Yes, Pig, precisely. I ignore the claims paying ability rating. That means nothing to me unless I bought a policy. Its the credit rating from A.M. you have to follow, not the claims paying rating. Some of the meat head experts fail to differentiate the difference.
NWGG,
Thanks for posting that Blueprint stuff. Always amazed at the rabbit holes I get myself into when people post interesting things.
Why do they mention withdrawal from IRA using RMD?
Isn’t this annuity outside of IRAs?
thx