Observations and Sample of Recent Trades: EAE, GAINL, PFLT, OFS, SLRC

Economy: 

I do not see the midterm election results as having any material impact on the economy. The republicans are likely to keep their majority in the Senate and will probably pick up at least one seat. I believe the Democrats will win control over the House by 5 to 15 seats.  

The economy will be in a robust state on election day. Unemployment will be a multi decade lows. Wages are rising at least as fast as inflation and slightly higher depending on the Y-O-Y comparison month. 

The GOP's main problem in the upcoming election is that Donald has pissed off far too many voters, particularly college educated women who have voted for republicans in the past. 

If the GOP loses the House, it will clearly be Donald's fault. Trump says he's not to blame if GOP lose House in midterm elections The Teflon Don will never accept blame for anything that goes wrong. 

While all of the rallies that the Duck has held in his perpetual campaign mode entertains the Trumpsters and riles them up, collectively they have turned off many independents, energized the usually lethargic Democrats, angered college educated women who have massively turned against the GOP, and antagonized most non-white voters who are not fervently committed to the GOP.   

The republicans will receive some benefit from voters who incorrectly believe that the tax cut will benefit them. Many of them, who are upper middle income taxpayers living in high state tax states, will be surprised when their 2018 tax returns are finalized next year and discover that their taxes have been raised. 

The rich know which party will make them richer by lowering their tax obligations. Kushner Likely Paid No Federal Income Taxes for Years, Documents Show  

U.S. budget deficit jumps to $779 billion - MarketWatch The budget deficit increased by $113B to $779B for the F/Y ending 9/30/18 which included three months under the old tax law. The budget deficit will likely come close to $1 Trillion in the current fiscal year, give or take a $100B. US budget deficit will eclipse $1 trillion in 2019, CBO report says - Business Insider

The federal government's deficit problems will come home to roost and will have a material adverse impact on the U.S. economy. 

For the next several years, the government is spending almost $1 trillion more each year than it brings in revenue. Spending a trillion or so dollars in borrowed money will provide an economic stimulates for as long as it continues without causing a large and non-temporary spike in interest costs for federal and state governments as well as businesses and consumers.  

While the timing is uncertain, the growing federal debt burden and rising interest rates will combine to cause higher interest rates for individual and business borrowers over the near and intermediate term. 

The major turning point, when there will be a significant and persistent increase in interest rates, will happen further into the future when supply far outstrips demand, causing a substantial rise in interest rates for that reason alone-potentially aggravated by other factors including an increase in inflation above current expectations. 

The Stock Jocks, like politicians, do not think that far ahead. Winning in the here and now is everything.    

This will not end well.  

Bond King Gundlach: 30-year yield could rise above 4%, 10-year rate to 3.6% before this move ends

Social Security beneficiaries to get biggest bump in seven years - MarketWatch

+++

Markets and Market Commentary: 

Goldman says the sell-off is just about over so get back into growth stocks

There is some danger that rising input costs will squeeze profit margins, which was one of the problems that PPG blamed for its recent profit warning. PPG warns of flat Q3 sales on rising costs, softening demand-MarketWatch 

Another industrial company, Fastenal Co. (FAST), reported margin pressure due to the GOP's tariffs and other factors raising costs. Fastenal Company Reports 2018 Third Quarter Earnings; Fastenal Company (FAST) CEO Dan Florness on Q3 2018 Results - Earnings Call Transcript | Seeking Alpha

Mounting costs add to worries about 2019 U.S. profit growth | Reuters

Profits will receive a significant boost in 2018 compared to 2017 due in part to lower tax rates. 

That boost to Y-O-Y profit growth will not be present when companies start to report during 2019. 

I would anticipate seeing a growling list next year of Y-O-Y profit declines due in part to slackening demand, increasing wage and benefit costs, higher interest costs, and rising input costs that can not be entirely passed to buyers. Profit margins for the S & P 500 will likely contract Y-O-Y. 

Apple’s earnings could be hit by weak demand in China, Goldman warns - MarketWatch

This touted market predictor screams sell, but here’s why you might want to ignore it - MarketWatch

BOJ's Kuroda warns of darkening global prospects as trade tensions weigh

++++++

Trump: 

Trump defends mockery of Christine Blasey Ford, says it got Kavanaugh confirmed

The Republican National Committee and many republicans are now running ads claiming the Democrats are in favor of "mob rule" and "mob tactics". Republicans accuse Democrats of 'mob' tactics as midterms approach

The Trumpsters continue to chant "Drain the Swamp". 

At least Sheldon Adelson is receiving concrete benefits for his $20M contribution to Donald's campaign and another $5M for the inauguration festivities. Trump’s Patron-in-Chief: Casino Magnate Sheldon Adelson 

During a meeting with Shinzo Abe, Japan's Prime Minister, the Duck pitched to ABE Sheldon Adelson's request for a casino license. The GOP's tax law also contained previously undetailed benefits to Adelson.  

The republicans wanted Adelson to pony up even more money for the midterms. The reports are that Adelson agreed to insert tens of millions into republican races in addition to the $55 million already donated in connection with this election cycle. Adelson drops tens of millions more to save the GOP Congress-POLITICO 

After all, the republicans gave Adelson's company tax breaks that will exceed $2B over time, so he needs to pony up to stay in their good graces. Trump Tax Cut Unlocks Millions for a Republican Election Blitz - The New York Times Sheldon Adelson gives $30 million to House GOP super PAC The tax cuts were really just to help out the middle class, or so the republicans tell us. 

The Trumpsters have not forgotten about Hillary, chanting "Lock her Up" at Trump's fact free rally in Erie on 10/10/18: Trump accuses Hillary Clinton of colluding with Russia as crowd chants 'lock her up' The Trumpsters live in a fact free zone, an Alternate Reality that will never be pierced with accurate information. 

An update on the Emoluments cases - National Constitution Center; Read the Decision: Judge OKs State AGs' Emoluments Case Against Trump | National Law Journal

Trump has difficulty writing a sentence without lying. Should USA Today have published Trump's op-ed? - CNN; FactChecking Trump's Medicare Op-Ed-FactCheck.org The op-ed was actually a WH press release masquerading as a thoughtful opinion column. 

As of early September 2017, the Uncouth and Lying Demagogue had publicly made over 5000 false and misleading statements since his inauguration. President Trump has made more than 5,000 false or misleading claims in 601 days- The Washington Post Lying is one of the GOP's new conservative values.  

How Trump bobs and weaves to avoid the truth - The Washington Post (details lies in Trump's 60 minutes interview); Fact-checking Donald Trump's interview on 60 Minutes | PolitiFact

Trump has no class. Trump talked with Jeff Sessions’s own chief of staff about replacing him as attorney general; See Kanye and Trump's full White House meeting - CNN Video

At a recent rally in Ohio, Trump praised Robert E. Lee and then asked African Americans to vote for republican candidates. 

++++

Republican Anti-Democratic Voter Suppression: 

Republican anti-democratic voter suppression continues in full bloom. It is just one of their ways of winning. Voting rights is a conservative value. The GOP is not a conservative party. 

The republican running for Georgia's governor, Brian Kemp, is in charge of the voting roles as Georgia's Secretary of State. In that capacity, he has been purging voters from the rolls and has put on hold voter registrations primarily from blacks who will not vote the right way in the upcoming election. Blocked voter registrations in Georgia reignite voter suppression debate - Vox Kemp is running against a black woman, Stacey Abrams, and the polls show a close race. RealClearPolitics-Election 2018-Georgia Governor - Kemp vs. Abrams  

When a student asked Senator Perdue (R) about voter suppression in Georgia, Perdue grab his Iphone. Georgia senator seen grabbing student's phone amid question about voter ID law | TheHill How dare that young man ask Sir Perdue a question. 

One of the longest running examples of republicans preventing black voters from casting ballots involves the black students at Prairie A & M University located in Waller County, Texas, a predominantly white county. Why one political activist felt changing Prairie View A&M's voting procedure was worth going to jail | 2018 Elections | Dallas News  

Even after the Supreme Court nailed the county for unconstitutionally interfering with the students' voting, Symm v. United States, the county arrested 19 students for exercising their constitutional rights. These flagrant acts of suppressing the vote of blacks have been ongoing in various forms for 4 decades in that county. And the voter suppression is now made easier by the Supreme Court's 5 to 4 decision repealing parts of the Voting Rights Act. Shelby County v. Holder, Supreme Court 2013 (opinion by CJ Roberts); Arrest throws Waller County voter registration dispute into further confusion-Houston Chronicle An employee of the Democrat congressional committee delivered a protest letter a few days ago to the county election commission and was arrested after being asked about his party affiliation. 

The republicans in North Dakota have found a novel way to keep Native Americans who live on reservations from voting since they overwhelmingly support Democrats. In Senate battleground, Native American voting rights activists fight back against voter ID restrictions - The Washington Post Those Native Americans do not have traditional street addresses which the republicans now require for exercising the right to vote. Many Native IDs Won't Be Accepted At North Dakota Polling Places-NPR  

Even with Native Americans being able to vote in ND, I would still expect the incumbent Heidi Heitkamp to lose her re-election bid, though it is conceivable that the republicans in that state have succeeded in pissing off non-Native Americans. 

The less than stellar intellect Kent Cramer (R) will be the next ND senator. I have a hard time deciding whether Kent Cramer or Brian Kemp, the GOP's candidate for Georgia's governor, has the lower IQ. Dumb and Dumber (1994) - IMDb 

It is a really tough call. 

See also, Stocks, Bonds & Politics: Trump and Massive Voter Fraud Allegations-Cover For Voter Suppression

Other anti-democratic actions undertaken by the GOP includes gerrymandering where congressional district lines are drawn in such a way as to aggregate as many democrat leaning precincts together, thereby making the remaining districts more republican. The end result is extremely oddly shaped districts that do not respect city or county boundary lines.

All that can be done is to shine a light on these activities and to vote against those who view voting rights as subservient to the acquisition and maintenance of political power. 

+++++

1. Bought 50 GAINL at $25.14-Used Schwab Commission Free Trade:

Quote: Gladstone Investment Corp. 6.375% Preferred Series E Stock 

Closing Price Yesterday: $25.4 up $.12 or .47% (adjusted for monthly ex dividend)

GAINL is a new equity preferred stock issued by Gladstone Investment Corp.  (GAIN), a BDC, that pays cumulative and non-qualified dividends.

Website: Investor Relations | Gladstone Investment Corporation

This security is unusual  for an equity preferred stock in that it has a maturity date.

Prospectus

Almost all equity preferred stocks are potentially perpetual provided the issuer does not exercise an optional call.

The existence of maturity date balances the interest rate risk between the issuer and the owner compared to those preferred stocks that are potentially perpetual. If interest rates continue to rise, the owner has the option to hold until the maturity date and then receive par value assuming the issuer is capable of making that payment.

Par Value: $25

Maturity Date: 8/31/25

Issuer Optional Redemption: On or after 8/31/20 at par plus accrued and unpaid dividends

Dividends: Monthly at $.1328 per share ($1.5938 annually)

Gladstone Investment Increases Monthly Cash Distributions to Common Stockholders and Announces Monthly Preferred Stock Cash Distributions, and a Supplemental Distribution to Common Stockholders

Dividend Yield at a Total cost of $25.15 =  6.34%

There is also a mandatory redemption when the issuer fails to meet a certain defined asset coverage level.  

Last Ex-Dividend: Yesterday

Maximum Position: 100 shares

Recent Earnings Report: Q/E 6/30/18

SEC Filed Press Release

One major disadvantage for the owners of a preferred stock issued by either a REIT or a BDC is simply that money is flying out the door to the common shareholders.

2017 Annual Report: 10-K

2. Short Term Bonds/CD Ladder Basket Strategy: 

A. Bought $7K 28 day Treasury Bills at Auction Maturing on 11/1/18: 
Investment Rate at 2.138%

$4K in Fidelity Roth IRA:

The interest is the difference between the $4K par value and the amount paid which is $6.55.  

$3K in Schwab Taxable:

Auction Results: 

B. Bought 1 Treasury 1.5% Coupon Maturing on 10/31/19: 
YTM = 2.63%

C. Bought 1 Treasury 1.625% Coupon Maturing on 12/31/19: 
YTM = 2.733%

D. Bought 1 Treasury 1.75% Coupon Maturing on 11/30/19: 
YTM = 2.695%

E. Bought 2 Treasury 6 Month Bills at Auction Maturing on 4/11/19:
Investment Rate = 2.442%

The prior week 6 month T Bill auction produced a 2.396% yield, continuing the slight tick up in yields. 

Auction Results: 

10/9/18.pdf

3. Small Ball-Income Generation from BDCs:

A. Bought 50 PFLT at $13.16 and 50 at $12.78-Used Schwab Commission Free Trades:

Quote: PennantPark Floating Rate Capital Ltd.  (PFLT)
Website: PennantPark – PFLT

Closing Price Yesterday: PFLT $12.94 +$0.09 +0.68% 

PFLT is an externally managed BDC whose debt positions are 100% floating rate loans.

SEC Filings

Annual Report for the F/Y Ending on 9/30/17 (risk factor summary starts at page 14 and ends at page 27)

Dividend: Monthly at $.095 per share ($1.14 annually per share)

PennantPark Floating Rate Capital Ltd. (PFLT) Dividend Date & History - NASDAQ.com

Current Position This Account: 100 shares

Average Cost Per Share = $12.97

Dividend Yield: 8.79%%

Last Ex Dividend Date: 10/17/18 (shortly after purchase)

Last Sold: 50 shares at $13.41 (3/22/18)-No Discussion

+$5.55

Last Buy Discussion: Item # 1.A. Bought 30 PFLT at $12.55 (2/26/18 Post)

I still own that lot which is held in my IB taxable account.

Net Asset Value Per Share History: Relatively Stable for a BDC

6/30/18: $13.82
9/30/17: $14.10
9/30/16: $14.06
9/30/15: $13.95
9/30/14: $14.40
9/30/13: $14.10
9/30/12: $13.98 

IPO at $15 in April 2011 (net after underwriters discount = $13.95)

Discount to Net Asset Value Per Share = -6.15%  (using NAV of $13.82 and $12.97 average total cost per share)

5 Year Operating History (through 9/30/17): 10-K Page 32

Last Earnings Report: Q/E 6/30/18

"As of June 30, 2018, our portfolio totaled $907.2 million and consisted of $820.0 million of first lien secured debt (of which $82.7 million was invested in PSSL), $35.2 million of second lien secured debt and $52.0 million of subordinated debt, preferred and common equity (of which $36.9 million was invested in PSSL). Our debt portfolio consisted of 100% variable-rate investments. As of June 30, 2018, we had no portfolio companies on non-accrual. Overall, the portfolio had net unrealized appreciation of $1.8 million. Our overall portfolio consisted of 83 companies with an average investment size of $10.9 million, had a weighted average yield on debt investments of 8.7%, and was invested 90% in first lien secured debt (of which 9% was invested in PSSL), 4% in second lien secured debt and 6% in subordinated debt, preferred and common equity (of which 4% was invested in PSSL). As of June 30, 2018, all of the investments held by PSSL were first lien secured debt." (emphasis added)

SEC Filed Press Release

10-Q for the Q/E 6/30/18 (basic terms of investments listed starting at page 8)

B. Bought 20 OFS at $11.7-Used Fidelity Commission Free Trade: 

This starts a small ball trading program in this nano cap BDC. It will be difficult to expand since there is an unusually large bid/ask spread. I will not bother placing a limit order when the spread is wide. 

Quote: OFS Capital Corp.  (OFS)

Closing Price Yesterday: OFS $11.47 +$0.21 +1.87%  (market cap at that price is only $153+M)

Website: Homepage - OFS Capital

2017 Annual Report (risk factor summary starts at page 24 and ends at page 47)

Maximum Position: 100 Shares

Purchase Restriction: Small Ball Rule

Dividend: Quarterly at $.34 per share ($1.36 annually per share)

OFS Capital Corporation (OFS) Dividend Date & History - NASDAQ.com

Dividend Yield at #11.7: 11.62%

Last Ex-Dividend Date: 9/13/18

5 Year Financial Data:

Net Asset Value Per Share History: 

06/30/18   $13.70
03/31/18   $13.67
12/31/17   $14.12
12/31/16   $14.82
12/31/15   $14.76
12/31/14   $14.24
12/31/13   $14.54

Discount to Net Asset Value Per Share at $11.7= -14.6% (using 6/30/18 NAV)

Final Prospectus Supplement: IPO Offering Price at $15 (November 2012) with proceeds after the underwriters' discount at $13.05 

Last Earnings Report: Q/E 6/30/18 

"As of June 30, 2018, the fair value of OFS Capital's debt investment portfolio totaled $326.5 million in 38 portfolio companies, of which 80% and 20% were senior secured loans and subordinated loans, respectively. As of June 30, 2018, we also held approximately $36.3 million in equity investments, at fair value, in 17 portfolio companies in which we also held debt investments and four portfolio companies in which we solely held an equity investment."

Net investment income for the quarter was $.34 per share, barely covering the $.34 quarterly dividend. 

Floating rate loans = 77% based on fair value of loans

Weighted Average Yield of Debt Investments = 11.8%

Risk Categories: 

10-Q for the Q/E 6/30/18 (basic terms of loans listed starting at page 10)

OFS Capital (OFS) CEO Bilal Rashid on Q2 2018 Results - Earnings Call Transcript | Seeking Alpha ("77% of the fair value of our loans are floating rate with a weighted average yield on our performing debt portfolio of 12.26%. 96% of our outstanding debt is fixed at a weighted average all-in cost of just 4.37%." page two; "With the asset and liability profile at quarter's end, for each 50 basis points of LIBOR increase, we realized an organic per-share increase of approximately $0.025 per quarter after the impact of incentive fees or a 7% increase in quarterly net investment income." page 3;  emphasis added ) 

Senior Unsecured Exchange Traded Baby Bond: 

OFS Capital Corp. 6.375% Notes due 2025 (OFSSL); Prospectus 

On 10/12/18, OFS sold $48.11+M (with the greenshoe) in principal amount of 6.5% senior unsecured notes maturing on 10/31/25. OFS Capital Corporation Prices Public Offering of $43,500,000 6.50% Notes Due 2025 This issue is an exchange traded baby bond. 

C. Sold 60 SLRC at $21.56-Used Schwab Commission Free Trade:

Quote: Solar Capital Ltd. (SLRC)
Solar Capital Filings with the SEC
SLRC Interactive Stock Chart
Form 10-K: 2017 Annual Report

Profit Snapshot: +$37.14

Item 2.A. Bought 50 SLRC at $20.82-Used Commission Free Trade (7/29/18 Post)

Closing Price Yesterday: SLRC +$20.76 +$0.06 +0.29% 

Maximum Position: 50 Shares

Current Position: None

Dividend: Quarterly at $.41 per share ($1.64 annually)

Solar Capital Ltd. (SLRC) Dividend Date & History - NASDAQ.com

I received one quarterly dividend.

The quarterly dividend was cut from $.6 per share to $.40 in 2013.

Assuming a total cost per share at the $21.56 sell price, the dividend yield would be 7.6%.

Last Ex Dividend Date:  9/19/18  (shortly before sell)

Last Earnings Report: Q/E 6/30/18

Net Asset Value Per Share = $21.93 as of 6/30
Discount to NAV At $21.56 = -1.69%

Solar Capital Ltd. Announces Quarter Ended June 30, 2018 Financial Results; Net Investment Income Per Share of $0.45; Declares Quarterly Distribution of $0.41 Per Share for Q3, 2018

Rationale: The goal with every BDC purchase is to escape at whatever profit is available after capturing at least one dividend, preferably several. There are several reasons for selling this stock: (1) I harvested the quarterly dividend and redirected the proceeds into PFLT which pays monthly and has a higher dividend yield; and (2) PFLT was selling a larger percent discount to its last reported net asset value per share.

Realized SLRC Gains to Date: +$100.07 ($62.93)

4. Long Term Bond Basket Strategy-First Mortgage Bonds: 

A. Added 20 EAE at $21.6-Used Schwab Commission Free Trade: 

Quote: Entergy Arkansas Inc. First Mortgage Bonds 4.75% Series Due June 1, 2063 (EAE)

Long duration first mortgage bonds have been whacked over the past several weeks due to the pop in long term rates.  

Closing Price Yesterday: EAE $21.29 -$0.13 -0.62% 

Entergy Arkansas - Service Area

Entergy Arkansas is a wholly owned subsidiary of Entergy Corp. (ETR).

Information about this electric utility can be found in ETR SEC reports. The following excerpt is from ETR's 10-Q for the Q/E 6/30/18: 

10-Q at page 107 

Prospectus

Par Value: $25

Maturity Date: 6/1/2063 unless called early at issuer's option

Last Discussed: Item # 3.A. Bought 30 EAE at $ (9/16/18 Post)

Current Position: 50 shares 

Maximum Position: 100 shares

Purchase Restriction: Small Ball Rule

Average Cost Per Share: $22.84

Yield at Average Total Cost = 5.2%

Interest Payments: Quarterly 

Security: First Lien on substantially all assets

Last Ex Interest Date: 8/30/18  

Optional Call by Issuer: on or after 6/1/18 (not likely to be called anytime soon given the recent rise in long term rates) 

Interest Rate Risk: Considerable to owner given long duration and rising rates/asymmetrical in favor of issuer  

Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.