Economy:
The core problem is inflation. Consequently, a slight drop in the February personal consumption price index produced a nice rally yesterday.
Annual PCE Price +5%, down from +5.3%
Annual Core PCE Price +4.6%, down from +4.7%
The Silicon Valley Bank collapse will cost the FDIC about $20B. FDIC spent $20 billion to handle Silicon Valley Bank collapse-The Hill Of that amount, $18B is attributable to insuring uninsured deposits. While admitting some inadequate regulatory response to a known interest rate risk management problem, the FED and the FDIC shifted almost all of the blame on SVB. The FED IMO was more responsible.
Fed calls SVB's failure a "textbook case of bank mismanagement" - CBS News; 5 takeaways from the Senate hearing on Silicon Valley Bank's failure : NPR
On 3/10/23, SVB suffered a $42B deposit withdrawal which was previously known, leaving the bank in a negative $958M cash position. ORDER TAKING POSSESSION OF PROPERTY AND BUSINESS The FDIC provided last week additional information that an additional $100B was in the queue for withdrawal on 3/11/23. $142 billion in 2 days: extent of SVB bank run comes into focus as U.S. regulators mull new rules | Morningstar No bank can survive that kind of withdrawal. Deposits are loaned out, with a loan-to-deposit ratio generally in the .9 to 1 range.
I have previously summarized the extremely irresponsible FED monetary policies that caused large unrealized losses in bank owned security portfolios as follows:
"The conditions creating the current crop of bank failures were created by the Federal Reserve which actions included the following: (1) the creation of excessive bank deposits through an a prolonged period of QE; (2) failure to address problematic inflation until the annual CPI was at 8.5% and then raising the FF rate by .25% off ZIRP in March 2022; (3) rapidly increasing the FF rate through 2022 that caused a substantial mismatch in what banks had to pay depositors and the yields on vintage securities owned by the banks; and (4) extending a rate suppression regime for more than a decade that left banks will no alternatives for credit risk free investments other than abnormally low yielding securities and have caused massive unrealized losses in bank owned securities." Federal Reserve approves first interest rate hike in more than three years, sees six more ahead (3/16/22)
The most fundamental cause was keeping ZIRP until annual CPI had reached 8.5% in March 2022 and then rapidly raising short term interest rates that resulted in huge mismatches between the cost of deposits and the yields on owned longer term securities.
Commercial real estate is in trouble. Why you should be paying attention | CNN Business; Commercial real estate could become a problem for midsize banks - The Washington Post (In this article, there is a reference to KBW report, published on 3/7, that predicts a 30% decline in office property values over the next 2 years. I would not lump all commercial real estate loans into one basket. The main problem is in multi-tenant office buildings, other than MOBs, that are located in certain major metropolitan areas where employers are cutting jobs and allowing employees to work from home even as the pandemic subsides)
Interest rates were in a dominant decline mode last month:
The rally in bonds in March 2023 would have reduced the unrealized loss numbers for bank owned securities. The ten year treasury yield declined 53 basis points.
The ten year breakeven inflation rate for the 10 year TIP closed at 2.32%.
The trend has been down since peaking in April/May 2022.
For the next Fed meeting on 5/3/23, the CME FedWatch tool now has a .25% FF increase at 48.4% and no change from the current 4.75% to 5% at 51.6.
The probability of rate cuts on or before the December meeting are high:
The probability that the range will be 4.5% to 4.75% or lower is at 89.5% and at 63.9% for at least 4.25%-4.5% or lower.
So the more probable than not forecast is that the range will be .5% lower than the current one by year end.
The lower forecasts for the FF range compared to one month ago are attributable to the banking crisis which increases the chances of a recession later this year. In the FED's last survey of senior loan managers for the 2022 4th quarter, released in January 2023, tightening of loan standards was already occurring to a limited decree. The Fed - The January 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices The March turmoil in the regional bank sector, including the quick and simultaneous collapse of 2 midsize banks due to deposit runs, will cause many banks to be more cautious since they can not trust their depositors with uninsured deposits to stick around. Even more tighter lending standards will retard growth and cause some borderline borrowers to fail.
++++
Allocation Shifts Discussed in this Post:
Treasury Bill Purchases: $3,000 in principal amount
FDIC Insured CDs: $5,000 in principal amount
Corporate Bonds: $2,000 in principal amount
Common Stocks: +$920.30
(second consecutive week of no sales)
Weighted Average Yield on Stock Purchases: 8.63%
Equity Preferred Stock: +$85.85 (yield at 10.7%)
Leveraged Bond CEF: $78.9
2023 Net Outflow Stocks/Stock Funds: -$32,077.39
+++
Putin and His Servile Orcs:
What a young woman student on Moscow’s most wanted list thinks of Putin and his war in Ukraine-YouTube The young woman, Olesya Krivtsova, criticized Russia's unprovoked invasion of Ukraine and was arrested for "treason". She was confined to her home pending her trial. Somehow, she managed to escape to a free and civilized country and is now on Putin's Most Wanted criminal list. I previously discussed her arrest by Russian Orcs. Denounced By Her Classmates, Anti-War Russian Teen Faces A Long Prison Term
Opinion | Why Do Russians Still Want to Fight? - The New York Times I frequently hear Russian Orcs defend their territorial war of aggression, crimes against humanity and war crimes committed in Ukraine as necessary to "protect the Motherland". Similar justifications were made by the Nazis at the Nuremberg Trials, except the phrase used by the Nazis was "protect the Fatherland". Both claims are nonsense of course, totally unhinged and severed from reality, common sense and sound judgment.
Russia sentences dad to two years after daughter’s antiwar art, but he flees - The Washington Post
Kyiv doctor's killing far from the front shows fallout of Russia's war - The Washington Post (3/26/23) The Russian missile strikes in Kiev that day hit far away from any military target. The Orcs targeted a playground, an office building and a downtown intersection where the Russians murdered a children's doctor on her way to work. Putin was just implementing his version of Russian traditional christian values.
'He's Satan': Russian Elites Call Putin Every Name in the Book on Leaked Call
Putin: Russia to station nuclear weapons in Belarus - BBC News; Putin says Russia will station tactical nuclear weapons in Belarus-NPR; Lukashenko welcomes Putin's plan to station Russian nukes in Belarus, accusing West of planning to invade (Just another absurd accusation by this Putin supported dictator); Belarus must end systematic repression, release detainees, UN Human Rights Chief says | OHCHR
Russian propagandists attack the U.S. simply by reiterating Trump claims about the 2020 election and the ongoing criminal investigations. The comments made in this video clip could have been written by Trump. Dimitri Simes says racism is to blame for Trump's prosecution - YouTube
Russian propagandist says Ukraine should be erased off the map - YouTube
The best 20th century comparison to Putin's propagandists is Joseph Goebbels.
All U.S. citizens, other than diplomats, need to leave Russia immediately as previously advised by the U.S. State Department. Russia arrests Wall Street Journal reporter Evan Gershkovich, accuses him of "spying" for U.S. - CBS News; ‘Leave now’: US official warns Americans in Russia - YouTube I suspect that arrest was made in anticipation of exchanging the WSJ reporter for recently arrested Russian spies including the GRU operative Sergey Cherkasov who was posing as a Brazilian student in the U.S. A Russian spy moved through Washington as a Brazilian graduate student - The Washington Post (3/29/23)
++++
Trump and His Party:
Donald called the Manhattan D.A. a "degenerate psychopath". Trump frequently externalizes his own personality flaws onto others.
Donald responded to his indictment in a predictable manner.
Donald Trump indictment response: See his Truth Social meltdown
Karen McDougal: Manhattan DA asks about hush money paid to former Playboy model
Donald Trump using antisemitic rhetoric to get political donations after indictment
How Freedom-Loving Florida Fell for an Authoritarian Governor - The Atlantic
Fact check: Trump repeats false claims during rally in Waco, Texas
Last Week in the Republican Party - March 21, 2023 - YouTube
Last Week in the Republican Party - March 28, 2023 - YouTube
Republicans Face Setbacks in Push to Tighten Voting Laws on College Campuses - The New York Times I have previously discussed several examples of republican controlled legislatures making it difficult for college students to vote since those individuals heavily tilt toward democrats.
The republican party is not helping its prospects in 2024 by defending Trump without even knowing the evidence that supports the recent criminal indictments. It is not going unnoticed by persuadable voters that republicans leap to Trump's defense no matter what he says or does which in effect looks like an endorsement of Trump's behavior to independent voters.
The 30+ counts of business fraud contained in the indictment are not currently known. There is no way to assess guilt or innocence without knowing the evidence supporting each claim and the criminal statutes allegedly violated by Trump. This has not stopped republicans from defending Trump and attacking the Manhattan D.A.
After the indictment is unsealed, probably on Tuesday, then I will pay some attention to republicans who defend Trump's actions described in the indictment. How many will come out and say that Trump did nothing wrong or will the republicans just continue attacking the D.A. and defending Trump with juvenile rhetorical flourishes.
As previously discussed, and based on what I know now, other criminal charges look more likely to result in felony convictions.
+++
1. Small Ball Buys:
A. Started CCAP - Bought 10 at $13.65:
Quote: Crescent Capital BDC (CCAP)
Cost: $136.5
This is a new name for me.
2022 Annual Report (Risk factor summary starts at page 20 and ends at page 46; summary terms of investments starts at page 77)
CCAP Assessment of Loan Risks: Pages 37-38 Annual Report
Sun Life Financial Inc. (SLF) has a majority interest in the external manager. Sun Life completes majority acquisition of Crescent Capital Group LP | Sun Life
Crescent Capital BDC, Inc. - Investor Relations (90% first lien; 98.8% floating rate investments)
Management: External
Recent News: CCAP acquired First Eagle Alternative Capital BDC (FCRD) in March 2023. Crescent Capital BDC, Inc. Completes Merger with First Eagle Alternative Capital BDC, Inc. (3/9/23) ("Based on the merger exchange ratio, First Eagle BDC stockholders will receive the following, subject to previously disclosed election mechanics, in exchange for each share of First Eagle BDC common stock held at the effective time of the merger: (i) $0.29 of cash from Crescent BDC, (ii) 0.20635 of a share of Crescent BDC common stock (with cash payable in lieu of fractional shares), and (iii) $1.17 of cash as transaction support provided by Crescent Cap Advisors, LLC. The exchange ratio was determined based on the closing net asset value (NAV) per share of $19.91 and $4.40 for Crescent BDC and First Eagle BDC, respectively, as of March 7, 2023.")
Dividend: Quarterly at $.41 (regular only)
Crescent Capital BDC, Inc.-Dividend History
Special Dividends: Three $.05 special dividend distributions were made in 2021-2022.
Yield at $13.65 = 12% (regular only)
Net Asset Value per share history:
12/31/22: $19.83
12/31/21: $21.12, SEC Filing
12/31/20: $19.88
9/30/20: $19.07
It is my understanding that Crescent was a private BDC until it acquired the publicly traded Alcentra Capital (ABDC) in February 2020. Crescent Capital BDC, Inc. - Crescent Capital BDC, Inc. Completes Acquisition of Alcentra Capital Corporation; SEC Filing
Last Earnings Report (Q/E 12/31/22): SEC Filing
Net Investment Income = $16.1M
NII per share: $.52
Adjusted NII = $.49 (adjustment is for an accrued capital gain incentive fee which may be payable to the external management company, management fees are discussed at pages 10-11; 59 of the Annual Report; "For the years ended December 31, 2022 and 2021 we (reversed) accrued $(6.3) million and $6.3 million, respectively, of capital gains based incentive fees.")
Net Asset value per share: $19.83 (Discount at $13.65 = 31.16%)
Non-accrual loans: 2% of total based on cost and 1.2% at current valuation marks
Number of portfolio companies: 129
Weighted Average Yield on Performing Debt Investments: 10.8%
B. Added to HTBK - Bought 25 at $8.41:
Quote: Heritage Commerce Corp.
Cost: $210.25
HTBK Analyst Estimates | MarketWatch
Investment Category: Regional Bank Basket Strategy
Last Discussed: Item # 2.J. Added to HTBK - Bought 5 at $8.78 (3/19/23 Post)
I discussed the last earnings report in this post: Item # 3.C. Added 5 HTBK at $11.88 (1/30/23 Post); SEC Filing
New Average cost per share: $9.75 (50 shares)
Dividend: Quarterly at $.13 per share
Yield at New AC = 5.33%
Last Ex Dividend: 2/8/23
C. Added 5 OCSL at $18.53:
Quote: Oaktree Specialty Lending Corp. (OCSL) - Externally Managed BDC
Cost: $92.65
Last Substantive Discussion: Item # 7.B. Added to OCSL - Bought 2 at $20.19; 5 at $19.55; 5 at $18.9 -Schwab Taxable Account (3/22/23) I discussed the last earnings report in that post. SEC Filed Press Release
New Average cost per share: $19.45 (20 shares)
Dividend: Quarterly at $.55 per share ($2.2 annually)
Yield at New AC = 11.31%
Last Ex Dividend: 3/14/23 (owned 15 as of)
D. Started UBFO - Bought 10 at $6.29:
Quote: United Security Bancshares (UBFO)
Cost: $62.9
There are no analyst estimates. The market cap at $6.29 is about $108M.
"United Security Bancshares (NASDAQ: UBFO) is the holding company for United Security Bank, which was founded in 1987. United Security Bank is headquartered in Fresno and operates 12 full-service branch offices in Fresno, Bakersfield, Campbell, Caruthers, Coalinga, Firebaugh, Mendota, Oakhurst, San Joaquin, and Taft, California."
Investment category: Regional Bank Basket Strategy
Owned Securities Available-for-Sale as of 12/31/22:
 |
| Maturities |
FHBL: Federal Home Loan Bank
UBFO's FHLB borrowings will be from the Federal Home Loan Bank of San Francisco. About the Federal Home Loan Bank of San Francisco
Dividend: Quarterly at $.11
Yield at $6.29: 7%
Next Ex Dividend: 4/5/23
Last Earnings Report (Q/E 12/31/22): SEC Filing
Net Income = $5.343M
E.P.S. = $.31, up from $.20 in the 2021 4th Q
NIM: 4.44%, up from 3.08%
Efficiency Ratio: 44.34%
Charge Off Ratio: .19%
NPL Ratio: High at 1.52%
NPA Ratio: High at 1.5%
Coverage Ratio: 68.1% (much prefer over 100% when buying)
ROE: 19.24%
Tangible Book Value per share = $6.33, down from $6.8 as of 12/31/21
As with other banks, book value was adversely impacted by owned securities going down in value last year.
Deposits:
Non-interest bearing: 41.32% of the total
E. Added to STWD - Bought 1 at $17.56; 1 at $16.59; 1 at $16.29:
Quote: Starwood Property Trust Inc. (STWD)
Cost: $50.44
STWD is a complicated hybrid REIT. By hybrid, I am referring to owning both paper investments and real assets.
2022 Annual Report (risk factor summary starts at page 15 and ends at page 56; Debt summary discussion starts at 136 and ends at page 144)
The company has 4 business segments:
 |
| Annual Report at page 4 |
Commercial and residential lending segment:
 |
| Annual Report at page 8 |
There are currently heightened concerns about commercial lending, most particularly in the office property sector excluding MOBs.
Property Segment:
 |
| Annual Report at page 11 |
 |
| Annual Report at page 10 |
 |
| Annual Report at page 12 |
Management: External
Last Discussed: Item # 5.D. Bought 5 STWD at $21.29 (12/6/22 Post)
Average cost per share this account: $19.22 (24 shares)
Dividend: Quarterly at $.48 per share ($1.92 annually)
Effective for the next payment, I have changed the dividend option to reinvestment.
Yield at New AC = 9.99%
Last Ex Dividend: 3/30/23 (owned all as of)
SU Debt: Rated at Ba3/BB- (low Junk ratings)
Finra Bond Detail for 4.75% SU maturing on 3/15/25 (actively traded)
Last Earnings Report (Q/E 12/31/22):
Distributable E.P.S. = $.53
On 3/14/23, Keefe, Bruyette & Woods lowered its PT to $22 from $23 and kept its outperform rating.
Last Sell Discussions: Item # 3.I. Pared STWD -Sold 5.105 at $25.43 (5/14/21 Post) (profit snapshot = $32.18); Item # 1.O. Sold 5 STWD at $25.22 (3/20/21 Post)(profit snapshot = $27.84); Item #1.N. Pared 7 STWD at $23.74 (3/13/21 Post)(profit snapshot = net at $14.56); Items 2.C. Pared STWD in Vanguard taxable-Sold 10 at $20.44 and 2.D. Pared STWD in Fidelity Taxable-Sold 10 at $20.95 (3/6/21 Post); Item # 1.A. Sold 10 STWD at $25.96 (2/16/2020 Post)(profit snapshot = $47.74)
Goal: Any total return before any ROC adjustments in excess of the dividend paid.
Fidelity Taxable Account: The somewhat larger STWD position is in my Fidelity account (29+ shares at a $14.26 AC) The current yield for those shares is about 13.46%. I have reduced the AC in that account b profitably by selling my highest cost shares. The lowest price paid was $8.5 for a 3/20/20 purchase. Other lots bought at less than $10 in March 2020 were purchased at $8.76 and $9.06.
Vanguard Taxable Account: 13 shares with a $13.99 AC per share.
I am currently maintaining duplicated positions in STWD but will only buy more shares in my Schwab account where I am currently reinvesting the dividend. I will not reinvest the dividends in the other two taxable accounts. My maximum share add per purchase is now at 2.
Other Buy Discussions: Item # 1.H. Added STWD in Fidelity Taxable Account-Bought 2 STWD at $17.18; 2 at $16.91; 1 at $15.24, 1 at $10.36; 1 at $9.3; 1 at $8.74; 1 at $12.45 ( 4/18/20 Post); Item # 1.C. Added to STWD in Fidelity Taxable Account-Bought 1 at $15.66, 1 at $15.12, 1 at $14.82; 1 at $13.74 (7/25/20 Post); Item # 2.D. Added to STWD in Fidelity Taxable-Bought 1 at $14.29 (12/5/20 Post)
Purchase Restriction-Schwab Account: 1 to 5 share lots with each subsequent purchase required to reduce my AC per share.
Maximum Position All Accounts: 100 shares (viewed as high risk given the high debt levels, the increase in debt financing costs, and the turmoil in the office property sector)
F. Added 5 HPPPRC at $9.55:
Quote: Hudson Pacific Properties Inc. 4.750% Cumulative Preferred
Cost: $47.75
Investment Category: Advantages and Disadvantages of Equity REIT Cumulative Equity Preferred Stocks
Last Discussed: Item # 2.B. Added 5 HPPPRC at $11.4 (3/19/23 Post)
Issuer: Hudson Pacific Properties Inc. (HPP)
Website: Hudson Pacific Properties: A West Coast Real Estate Group
Security: Prospectus
Par value: $25 (IPO in November 2021, public offering price $25)
Dividends: Paid quarterly, cumulative and non-qualified
Placement in Capital Structure: Equity preferred stock, senior only to common stock.
Average cost per share = $13.28 (115 shares)
Yield at AC = 8.94%
Yield at $9.55: 12.43%
Last Ex Dividend: 3/17/23 (owned 110 as of)
Last Dividend Payment (110 shares):
For HPP to defer the preferred stock dividend, it must first eliminate the cash common stock dividend, which is currently at a $1 per share annual rate paid in quarterly installments, and refrain from using cash to buy back common stock.
For the 2022 4th quarter, the common stock dividend was comfortably covered by AFFO. SEC Filed Press Release and SEC Filed Supplemental (see discussion at Item #4.A. noting that AFFO per share, equivalent to CAD, was at $.435)
G. Added to NBB - Bought 5 at $15.78:
Quote: Nuveen Taxable Municipal Income Fund Overview -Leveraged Bond CEF
Cost: $78.9
This CEF owns taxable municipal bonds issued under the Build America program that expired in 2010. Build America Bonds (BABs) Those bonds generally have long maturities and consequently have gone down a lot in price over the past year. The decline was aggravated by the fund's considerable leverage. Buying bonds using borrowed money that decline in price is not an optimal practice. I do not own any individual BABs.
It probably makes more sense to own a taxable municipal bond fund in a retirement account. To receive the tax related benefits of federally tax free municipal bonds, it is of course necessary to own them in a taxable account. I will generally own close to $300,000 in principal amount of Tennessee federally tax free municipal bonds spread over 3 taxable accounts.
Investment Category: Monthly Income Generation
Sponsor's Website: Nuveen Taxable Municipal Income Fund
Leveraged: Yes at 39.75% as of 2/28/23.
Number of Holding as of 2/28/23: 151 with an effective maturity of 19.53 years
Last SEC Filed Shareholder Report - Semiannual for the period ending 9/30/22.
Last Discussed: Item # 3.L. Restarted NBB - Bought 10 at $16.9 (5/19/22 Post)
Average cost per share: $16.53 (15 shares)
Dividend: Monthly at $.072 per share ($.864 annually)
Dividend History: Unfavorable
The dividend was at $.1085 for the October 2022 payment and was cut to $.0925 effective for the next payment. The penny rate was then cut to the current rate effective for the February 2023.
I do not attribute the dividend cuts to mismanagement but is caused by the rapid rise in short term borrowing costs. The cuts appear to be necessary to avoid ROC support.
Yield at New AC = 5.23%
Last Ex Dividend: 3/14/23
Credit Quality:
Data Date of 3/27/23 Purchase:
Net asset value per share: $16.74
Closing Market Price: $15.77
Discount: -5.79%
Average 5 year Discount: -2.05%
Source: NBB-CEF Connect
Net asset value per share has suffered from a Double Whammy consisting of a significant rise in short term borrowing costs and the decline in long duration bonds resulting from a rise in interest rates. NAV per share was at $21.53 on 2/28/22. The percentage decline from 2/28/22 to 3/27/23 was 22.25%. At the current dividend rate and yield, that percentage decline wipes is equivalent to more than 4 years of dividends which highlights the total return risk.
I am very hesitant to own many shares until there is a longer and dominant trend down in both short and long term interest rates.
NBB Realized Gains to Date: $516.65
Prior Sell Discussions: Item # 1.F. Eliminated NBB - Sold 35 at $20.17 (6/20/20 Post)(profit snapshot $53.53)-Item # 2.B. Restarted NBB-Bought 20 at $19.4, 5 at $18.5; 5 at $17.74 5 at $16.67 (4/11/20 Post); Item # 3 Sold 50 NBB in Roth IRA: Update For CEF Basket Strategy As Of 2/26/16 - South Gent | Seeking Alpha (profit snapshot = $62.98)-Item # 1 Bought 50 NBB at $19.51 in a Roth IRA: Update For CEF Basket Strategy As Of 10/21/15 - South Gent | Seeking Alpha; Item # 2 Sold 100 NBB at $21.25 (Roth IRA)(2/27/15 Post)(profit snapshot $101.7)-Item # 1 Roth IRA: Added 100 NBB at $20.1 (6/14/14 Post); Item # 2 Added 50 NBB at $18.55 (6/29/13 Post); Item # 1 Bought 50 NBB at $20.73-ROTH IRA (6/8/12 Post); Item # 1 Sold 100 NBB at $20.13-ROTH IRA (11/22/2011 Post); Item # 3 Sold 100 NBB at $20.07 (11/4/11 Post); Item # 1 Sold 50 NBB at $19.24 in the Regular IRA (12/3/2010 Post)- Item # 5 Bought: 50 NBB at $18.4 (11/18/2010 Post)
H. Added to RTL - Bought 2 at $6.08:
Quote: Necessity Retail REIT Inc. (RTL)
Cost: $12.16
As of 12/31/22, RTL "owned 1,044 properties, comprised of 27.9 million rentable square feet, which were 93.7% leased, including 935 single-tenant net leased commercial properties (897 of which are leased to retail tenants) and 109 multi-tenant retail properties. Based on annualized rental income on a straight-line basis as of December 31, 2022, the total single-tenant properties comprised 48% of our total portfolio and were 67% leased to service retail tenants, and the total multi-tenant properties comprised 52% of our total portfolio and were 42% leased to experiential retail tenants, defined as tenants in the restaurant, discount retail, entertainment, salon/beauty and grocery sectors, among others."
Investment Category: Equity REIT Common and Preferred Stock Basket Strategy
2022 Annual Report (Risk factor summary starts at page 4 and ends at page 30)
Website: Necessity Retail REIT
Interactive Property Map — Necessity Retail REIT
Management: External and poorly regarded IMO
As previously discussed there is an ongoing proxy fight between entrenched management and a hedge fund who wants to elect two new directors and amend the bylaws to make it easier to internalize management. Blackwells Capital Releases Presentation and Announces Website Exposing AR Global’s Value Destructive Management of Global Net Lease Inc. and The Necessity Retail REIT Inc. RTL is attempting to secure a court order blocking Blackwells proxy alternative. I have not seen any recents news on that litigation. If a Court allows Blackwells to proceed, I view it more likely than not that the bylaw changes will pass and the two Blackwells Board nominees will win which is why the external manager wants to keep shareholders from even voting.
Last Discussed: Item # 3.C. Added 4 RTL at $5.93 (1/10/23 Post) I discussed the third quarter report in that post.
Recent News: The Necessity Retail REIT Completes $70M Stop & Shop Disposition (2/28/23)
5 Year Chart:
Average cost per share: $7.04 (209+ shares)
Dividend: Quarterly at $.2125 per share
I am reinvesting the dividend for as long as the purchases lower my AC per share or there is some material adverse event.
Yield at New AC per share: 12.07%
Last Ex Dividend: 1/12/23
I have not seen an announcement yet for the next payment.
Last Earnings Report (Q/E 12/31/22):
SEC Filed Press Release and Supplemental
AFFO per share: $.27, up from $.21
Net Income to FFO to AFFO Calculations:
93.7% Leased
Percentage of debt at fixed rates was at 83.6% as of 12/31/22.
Debt is discussed at pages F-24 to F-28, Annual Report Mortgage debt totaled $1.808+B and generally has favorable coupons and maturities, but $253M matures in April-December 2023.
There is borrowings under a credit facility and a $500M 4.5% SU note that matures in 2028. Borrowings under the credit facility in 2022 were at a spread to the Libor rate, stood at $478M as of 12/31/22 with an interest rate than at 6.51%. RTL borrowed money to fund the purchase of 81 properties in 2022. I suspect that the amount outstanding will be paid down with the proceeds received from the recent property sales.
I. Added to FULT - Bought 2 at $13.83:
Quote: Fulton Financial Corp. (FULT)
FULT is a bank holding company that owns Fulton Bank which had, as of 12/31/22, 209 financial centers (91 owned) located in Pennsylvania, New Jersey, Maryland, Delaware and Virginia.
Cost: $27.66
FULT Analyst Estimates | MarketWatch
Available for Sale/Held to Maturity Securities as of 12/31/22:
Deposits as of 12/31/22:
 |
| Noninterest bearing at 33.9 of the total |
Last Discussed: Item # 4.G. Added to FULT - Bought 3 at $14.69 (6/28/22 Post)
Average cost per share = $16.08 (22+ shares)
Dividend: Quarterly at $.15 per share
FULT Dividend History | Seeking Alpha
Yield at AC = 3.73% (regular dividend only)
A special dividend of $.06 per share was paid in December 2022. Special dividends at variable rates have been paid every year starting in 2014.
Last Ex Dividend: 3/31/23 (owned all as of)
Most Recent Acquisition:
Fulton Financial Merges Its Prudential Bank Subsidiary Into Fulton Bank, N.A. (11/7/22); Fulton Financial Corporation and Prudential Bancorp, Inc. Announce Merger, Strengthening Fulton’s Presence in Philadelphia (3/2/22)
Last Earnings Report (Q/E 12/31/22): SEC Filing
GAAP E.P.S. $.47
Non-GAAP E.P.S. = $.48
NIM: 3.69%, up from 2.77% in the 2021 4th quarter
Efficiency Ratio: 58.1%
NPL Ratio: .85%
NPA Ratio: .66%
Charge off ratio: .23%
Coverage Ratio: 157%
ROE: 13.7%
ROTE: 18.59%
2022 Diluted GAAP E.P.S. = $1.67
TTM P/E at $16.08 AC = 9.63
2022 Diluted Non-GAAP E.P.S. = $1.76
Non-GAAP E.P.S. excludes merger related expenses.
J. Added to WBSPRG - Bought 2 at $19.05:
Quote: Webster Financial Corp. 6.5% Preferred A Stock
Cost: $38.1
52 Week Range: $17-$25.69
Issuer: Webster Financial Corp. (WBS)
WBS 2022 Annual Report (2022 net income available to common shareholders was $628.364M) We have now learned that a profitable bank, with low charge off and non-performing loan ratios, can go bankrupt in two days.
I would emphasize that a bank holding preferred stock will become worthless, or very close to it, when and if the FDIC seizes the operating bank. This recently happened with the SVB Financial preferred stock after the FDIC seized Silicon Valley Bank and the holding company filed for bankruptcy.
Last Discussed: Item # 5.E. Bought 5 WBSPRG at $22.8 (11/8/22 Post)
Average cost per share: $21.73 (7 shares)
Par Value: $25
Yield at Average cost: 7.48%
(computation: .065% coupon x. $25 par value = $1.625 in annual dividends ÷ $21.73 AC per share = 7.48%, rounded)
Dividend: Non-cumulative, qualified and paid quarterly.
Last Ex Dividend: 3/30/23 (owned all as of)
Stopper Clause: Standard
Optional Call: On or after 10/15/22 at par value + accrued and unpaid dividends.
K. Added to OPI - Bought 2 at $11.48; 1 at $11.38:
Quote: Office Properties Income Trust (OPI)
Cost: $34.34
As of 12/31/22, OPI's "wholly owned properties were comprised of 160 properties containing approximately 21.0 million rentable square feet". The "properties were leased to 274 different tenants, with a weighted average remaining lease term (based on annualized rental income as defined below) of approximately 6.6 years. The U.S. government is our largest tenant, representing approximately 19.7% of our annualized rental income as of December 31, 2022." 2022 Annual Report
Top Tenants as of 12/31/22:
 |
| Page 48, Annual Report |
Management: External and poorly regarded as reflected in a long term price chart. IMO, the REIT is not managed for the benefit of its shareholders as reflected in this REIT's acquisition history which I have previously summarized.
10 Year Chart: Children-Avert your eyes since this chart is obscene
SEC Filed Investor Presentation -March 2023
Last Discussed: Item # 5.S. Added to OPI - Bought 1 at $12.35 (10/25/22 Post)
Average cost per share: $16.33 (35 shares)
Dividend: Quarterly at $.55 per share
Yield at New AC = 13.47%
Yield at $11.38: 19.33% (at 19.33%, money doubles before taxes and inflation in about 3.92 years The Rule of 72 (with calculator) - Estimate Compound Interest, an estimate that may change up or down depending on the prices paid for shares bought with the quarterly dividends and assuming no dividend cut)
The assumption that is built into the 19.33% is IMO a 100% chance that the dividend will soon be slashed, possibly by at least 50% or more. I do not have the decree of certainty but would view a cut to $.40 to be prudent now.
Last Ex Dividend: 2/16/23
SU Debt: Rated at BBB- by S&P, but trades at YTMs that would be consistent with a low level junk rating. Moody's downgraded the SU debt from Ba1 to Ba2 on 3/8/23. In July 2022, Moody's reaffirmed the debt at Baa3, the lowest investment grade level.
E.G. Office Properties 2.4% SU Maturing in 2027
Last Earnings Report (Q/E 12/31/22): SEC Filed Earnings Press Release
Normalized FFO per share = $1.13
CAD (cash available for distribution) per share: $.20
% Leased: 90.6%
CAD was unusually low in the 2022 4th quarter due to a substantial increase in recurring capital expenditures:
Net Income to FFO to CAD:
Significant Redevelopment Costs:
At the current YTMs of OPI's senior debt, I do not view issuing new SU debt to repay maturing bonds to be an option. OPI will need to add more property specific mortgage debt, draw down its credit line, and/or sell properties to refinance bonds at maturity, assuming yields are anywhere near where the SU debt is trading now.
The next SU maturity is a 4.25% bond that matures on 5/15/24, originally issue by Select Income REIT that was acquired by OPI. The principal amount outstanding is $350M. I own it, having purchased those bonds when the outlook was much better than now. The bond is actively traded, frequently in large lots.
Credit Facility, SU Debt and Mortgage Debt: |
| In Thousands |
L. Added to WASH - Bought 5 at $34.7:
Quote: Washington Trust Bancorp Inc. (WASH)
Cost: $173.5
Investment Category: Regional Bank Basket Strategy
This was an average up from a 2020 five share purchase. I noted that the stock had declined on 3/30/23 more than the quarterly dividend which went ex on 3/31 and the stock had significantly retreated from its 52 week high of .
2022 GAAP E.P.S. = $4.11
TTM P/E at $34.7 = 8.44
Dividend Yield at $34.7: 6.46%
Last Discussed: Item # 2.G. Restarted WASH - Bought 5 at $29 (5/30/20 Post)
Last Round-Trip: Item # 2. Eliminated WASH-Sold 50 at $61.53 (6/25/18 Post)(profit snapshot = $2,309.25)- Item # 3 Bought 100 WASH at $15.26 (1/14/2010 Post)
Average cost per share: $31.85 (10 shares)
Dividend: Quarterly at $.54 per share, last raised from $.52 effective for the 2023 first quarter payment.
Dividend History: Good
Yield at New AC = 7.03%
Last Ex Dividend: 3/31/23
Last Earnings Report (Q/E 12/31/22): SEC Filing
Net income of $16.6M or $.95 per share
NIM = 2.65% (needs to go up)
Efficiency Ratio: 60.5% (needs to come down)
NPL Ratio: .25%
NPA Ratio: .19%
Charge off ratio: Net Recovery
Coverage Ratio: 296.02%
ROE: 14.96%
ROTE: 17.74%
Tangible Book Value per share: $22.42
"The securities portfolio totaled $994 million at December 31, 2022, up by $11 million, or 1%, from September 30, 2022, largely reflecting an increase in the fair value of available for sale securities due to changes in interest rates. Purchases of U.S. government-sponsored mortgage-backed securities were offset by routine pay-downs. The securities portfolio represented 15% of total assets at both December 31, 2022 and September 30, 2022."
Owned Securities:
 |
| Page 87, Annual Report (unrealized loss at $172.682M as of 12/31/22) |
 |
| Of the $1.051+B total, $104.5M Mature in 1 year or less |
Deposits:
 |
| Page 110, Annual Report |
 |
| P. 77 Annual Report |
 |
| P.99 Annual Report |
Non-interest paying deposits: 26.11% of the total
2. CDs -FDIC Insured: $5,000
A. Bought 2 Cadence Bank 5.35% CDs Maturing on 12/29/23:
%2012:29:23%205.35%25%20.png){kind=small}
Issuer: Cadence Bank (CADE)
Interest Paid at maturity.
B. Bought 1 Enterprise Bank & Trust 5.25% CD Maturing on 3/29/24:
%203:29:24%205.25%25.png)
Interest paid at maturity.
Operating bank for the bank holding company Enterprise Financial Services Corp. (EFSC)
C. Bought 1 Zions 5.4% CD Maturing on 9/27/24:
%205.4%25%209:27:24%20.png)
Interest paid at maturity.
D. Bought 1 Webster Bank 5.05% CD Maturing on 10/5/23:
%205.05%25%2010:5:23.png){kind=small}
Interest Paid at maturity.
I have a small ball position in the bank holding company Webster Financial Corp. (WBS)
I do not recall seeing Webster offering brokered CDs prior to this one.
3. Treasury Auction Purchases:
A. Bought 3 Treasury Bills at 3/26/23 Auction:
%206:29:23%20.png){kind=small}
Mature on 6/29/23
Interest: $35.45
Investment Rate: 4.81%
4. Corporate Bonds:
The following senior unsecured bonds were purchased through the Fidelity Corporate Notes offerings. Those bonds are initial offerings and purchased at par value.
I am replacing in advance 2 GS bonds that are about to mature:
I did not buy any bonds in 2021. The 2.4% SU bond maturing on 4/28/23 was purchased on 3/28/22. The 2.7% SU maturing on 5/29/23 was also a 1 year bond. MM rates were still near zero when I made those purchases.
I may buy newly issued GS bonds to replace the 1 bonds that mature on 6/13, 6/20 and 9/29 when I am closer to those maturities.
The GS SU bonds are rated A2/BBB+.
A. Bought 1 Goldman Sachs 5.35% SU Maturing on 6/6/24:
%205.35%25%206:6:24.png)
B. Bought 1 Goldman Sachs 5.45% SU Maturing on 10/4/24:
%2010:4:24%20.png)
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 sale 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 my family members.
So market is going up if inflation goes down.
ReplyDeleteBut that decline may be part of a recession that's coming, which would be bad for earnings.
I don't understand the market's logic.
Is it estimating that lower inflation is all from Fed policy & a softlanding, without recession, is coming?
Some nice CD finds.
ReplyDeleteWhy aren't indictment details released with the indictment?
Trump's fundraising was right on cue. Steal from his followers. Soros himself is pretty awful for the Jewish community (alt-far left financier) which makes targeting him to target Jews so ironic. But 'globalists' was the code word Hitler literally used in his early speeches. Meanwhile, my chicken soup for seder came out good. It needs more flavor to taste like my mom's. I'm hoping her idea (on my recipe) of adding dill when you reheat does the trick.
Land: Brokered CD rates are currently slightly higher than comparable maturity treasuries but both declined last month.
DeleteI have a number of maturities in April (56K) and will probably use the proceeds to buy some short term T Bills, FDIC insured CDs when the yields are higher than comparable treasuries and possibly some SU bonds offered through Fidelity's corporate bond offerings provided I can pick up at least 5.25% and a maturity in the 12-14 month range.
Problematic inflation is causing a lot of problems including compression of profit margins and the problems at banks that are largely a FED creation caused by its monetary policies.
So once inflation is recognized as the core source problem, which is the consensus IMO, continuing to come down will be met with a relief rally but that is not generating a long term uptrend. The S&P 500 was near 4600 in April 2022 and mostly just a lot of up and down chop over the past 52 weeks.
Prices in many stock sectors are already reflecting recessionary conditions that are not yet evident in earnings reports. Two sectors that are in bear markets are the regional banks and equity REITs, and I am nibbling in both.
++
Soros was born into a non-observant Jewish parents. I do not believe that he has ever been religious or a practicing Jew. So he is not really Jewish in a religious sense.
And I generally understand why many Jews are critical of him, his contribution history and remarks about Israel.
https://www.washingtonjewishweek.com/george-soros-is-a-leading-target-of-anti-semitism-these-jews-openly-criticize-him-anyway/
I view him primarily as a traditional liberal. Since he has Jewish ancestry, is rich, and donates substantial sums to democrats and progressives causes, he has become the subject of a steady stream of fact free conspiracy theories generated by republicans, which fit into the long standing, easily recognized anti-Semitic tropes
The most recent example is Trump and many other republicans blaming Soros for Trump's indictment since some money that he gave to an organization called "Color of Money" was later donated to Bragg's last campaign fund. Neither Soros nor his Pac made a contribution, and that organization selects who will receive donations without input from its contributors.
I view that effort as part of the "globalist" category of antiSemitism about wealthy Jewish people working in secret cabals to undermine the real America, the real Hungary, the real western civilization or the real whatever.
https://www.washingtonpost.com/politics/2023/04/01/incendiary-claim-that-george-soros-funds-alvin-bragg/
https://newrepublic.com/article/167373/george-soros-antisemitic-marco-rubio-prosecutors
I also believe Soros strong support for democracies renders him a natural target for authoritarians and authoritarian leaning politicians.
https://www.nytimes.com/2017/07/17/opinion/george-soros-israel-hungary.html
The fact that republicans will defend Trump no matter what he says or does defines them as well.
I wanted to add some thoughts. I'll have to wait till later in this trip.
DeleteI don't know how we right this country - but I'm not interested in living in 'interesting times.'
In this post, I mentioned that I had not yet seen a dividend announcement from RTL. The REIT announced its regular quarterly dividend of $0.2125 per share this morning.
ReplyDeletehttps://www.prnewswire.com/news-releases/the-necessity-retail-reit-announces-common-stock-dividend-301787413.html
IMO, the next possible catalyst for the stock would be a court decision allowing shareholders to vote on Blackwells directors and bylaw changes. I do not have an opinion on the likelihood since I do not have access to the legal documents filed in the ongoing litigation.
++
Longer term interest rates are falling again today.
U.S. 10 Year Treasury Note
3.426% -0.045
Last Updated: Apr 3, 2023 at 10:55 a.m. EDT
https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx&mod=home-page
The March ISM Manufacturing index decline to 46.3%, the lowest level since May 2020.
https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/march/
Crude oil prices are surging after OPEC announced a 1.16M per day barrel cut in production.
https://www.cnbc.com/2023/04/03/oil-prices-surge-after-opecs-surprise-cuts-analysts-warn-of-100-per-barrel.html
While that adds to inflation some, the cut would also be seen as a reaction to lower demand and the implications flowing therefrom for global economic growth and consequently feeds into the narrative supporting the recent rally in high quality bonds.
Rogers Communications finally closed its acquisition of Shaw Communications (SJR):
ReplyDeletehttps://about.rogers.com/news-ideas/rogers-closes-transformative-merger-with-shaw/
I previously eliminated my SJR position after the acquisition offer was made. The purchase price was C$40.5 that would be converted into USDs for SJR owners. There was about a 7.3% decline in the CAD/USD exchange rate since the merger was first announcement on 3/15/21.
+++
Renewed weakness in bank stocks is causing another dip in major stock indexes today.
SPDR S&P Regional Banking ETF (KRE)
$42.03 -$1.37 -3.16%
52 WEEK RANGE $41.28 - $68.83
Last Updated: Apr 4, 2023 1:11 p.m. EDT
https://www.marketwatch.com/investing/fund/kre?mod=search_symbol
I did not see any new news to account for the decline. There is a growing concern about a recession developing soon.
U.S. 10 Year Treasury Note
3.354% -0.064%
https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx&mod=home-page
I am seeing a meaningful decline in short term brokered CD rates and consequently switched to buying short term SU notes today, which have higher yields, using the proceeds from a short term treasury bill that matured today.
The decline in intermediate and longer term interest rates over the past month will reduce the unrealized losses in bank owned securities that is a major cause of regional bank stock weakness. Lower CD rates will relieve the pressure on NIM a bit. I am continuing to nibble in this sector focusing on stocks that have greater than 5% dividend yields and below 10 TTM P/Es, with some closer to 5 than 10.
I tried looking this morning for a reason. Didn't see much. Maybe?
ReplyDelete"Jamie Dimon warns banking crisis is not over and repercussions will last 'for years to come'"
Technically it was nearing a resistance.
https://www.foxbusiness.com/economy/jamie-dimon-warns-banking-crisis-not-over-will-cause-repercussions-years
Whoever's handling VMRXX at Vang is doing it well, currently at 4.78%. The downturn will lag the CD rates a little I assume.
I'm getting a churning feeling in my stomach over the market. I hadn't had that before much. Not sure what it means. The piggy feeling in Nov meant it was near the top.
I haven't been through a recession before while paying attention.
Land: I am expecting a major tightening of lending standards due partly to recession fears but mostly resulting from the ongoing banking crisis resulting from uninsured deposit runs which has yet to be addressed by the government.
DeleteI don't see how senior bank lending officers can trust those depositors to stay put. Consequently, far fewer loans will be made using much tighter lending standards, and an inordinate amount of cash will be held to meet deposit runs.
That's a compelling argument for what's unfolding.
DeleteLand: I have the Vanguard Federal Money Market Fund (VMFXX) and the 7 day SEC yield is at 4.77%, compounded to 4.88%. The weighted average maturity is 13 days, so it will respond quickly to both increases and decreases in the FF rate.
DeleteThe CRM FedWatch tool is forecasting rate a significant decrease before year end. If that proves prescient, then the MM fund may be close to a peak yield now.
Click December 2023 tab:
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
I mentioned in a comment a few weeks ago that my major concern now is that rates will be appreciably lower when my bonds mature in 2024, which is the apex of my bond ladder.
My dad wasn't ready to talk CDs a few weeks ago, but I suspect we've missed the top. He needs a bond ladder since he's not going into the market
DeleteWhen rates are lower, the market logically will be lower & I'll be getting in. Assuming logic prevails.
I don't know what I'll do about bond ladder money.
Was the school shooting near you? This follow up is so typical now a days. It didn't used to be!
ReplyDelete"Tennessee House GOP moves to expel 3 Democratic representatives after they joined gun control protest on House floor "
https://www.cnn.com/2023/04/04/us/tennessee-reps-expulsion-gun-control/index.html?utm_content=2023-04-04T15%3A31%3A00&utm_medium=social&utm_term=link&utm_source=twCNNp
The country & world's politics have been churning my stomach for a while.
Land: The school shooting in Nashville was about a 15 minute drive from my house. Tennessee republicans are far right and 100% Trumpsters. Republican super majority control over the legislature and a republican governor are here to stay for the remainder of my life and beyond. TN is hopeless in that regard.
ReplyDeleteIt recently took considerable and prolonged, negative national publicity for them to remove a statue of Nathan Bedford Forrest, a confederate general and founder of the KKK, from the capitol rotunda.
When they first came to power in Tennessee, the first and most important legislation passed by them was to authorize gun carry in bars.
That is very close. There really isn't anything to say or offer. It's awful.
DeleteCarrying in bars - important to do - because alcohol and guns go together so well. In abuse cases, there's over 55% with alcohol or drugs involved.
KKK - it'd be a hate crime at black lawyers and all of us, just to have to walk by it into the courthouse.
Enbridge Inc. 6.375% Fixed-to-Floating Rate Sub. Notes Series 2018-B due 2078 (ENBA)
ReplyDeletehttps://www.marketwatch.com/investing/stock/enba?mod=search_symbol
Earlier, I mentioned that this junior fixed-to-floating rate exchange traded bond was about to transition from its fixed rate to a floating rate. Rather than allowing that to happen, Enbridge has decided to redeem the bond at the $25 par value + accrued and unpaid interest. The redemption date is 4/15/23:
https://www.enbridge.com/media-center/news/details?id=123759&lang=en
I own only 10 shares that were bought at $15.17:
Item # 7.A.
https://tennesseeindependent.blogspot.com/2020/03/bpoprp-cio-ciopra-enba-fdus-gis-hban.html
If allowed to reset on 4/15, the new coupon would have been at 3.593% spread to the 3 month Libor rate which is still quoted for a few more weeks. That rate is currently at 5.22% and would have reset every three months at that spread for 5 years.
++
The Atlanta FED GDP Model is currently predicting 1st quarter real GDP growth at 1.5%, down from 3.2% when I last mentioned that forecast in my 3/25/23 post:
https://tennesseeindependent.blogspot.com/2023/03/cfg-clpr-hiw-nycb-opbk-pdm-slgpri-thq.html
Both the current FF forecasts contained in the CME FedWatch tool and the dominant downtrend in treasury yields, coupled with weakening economic data, are consistent with a recession about to occur which will cause the FED to reduce the FF rate later this year.
While a recession will increase bank non-performing loans and charge offs, and the current turmoil in this sector resulting from deposit runs, will result IMO in slower or even negative loan growth for many banks, the positives are a reduction in unrealized losses in owned securities and a downtrend in CD deposit costs.
I was on a zoom with the same financial advisor. He uses the BCI. Also when 50 crosses over (or below) 200 MDA. Got out Feb 2022.
DeleteHe's expecting that when the Fed pivots, the markets will drop. That the pivot is part of the lending tightening, etc. ... and that after a Fed pivot there's always a drop downturn (not immediately that day.)
Matches to pieces you've describe here.
Also matches to my expectations. I'm not seeing articles about a market pullback from it all yet.
Land: The stock market will generally rise after the FED ends its tightening cycle, when measured in 6 or 12 month periods.
Deletehttps://monetagroup.com/blog/the-other-side-of-the-pause-market-returns-when-the-fed-stops-hiking/
I would not draw comfort from that data. One major issue is that the FED's monetary policies are largely responsible for the current banking crisis, which will IMO likely result in a significant tightening of credit standards and far less credit overall. The economy requires oxygen to function. If that results in a recession, then ending the FF increases and cutting some from a terminal number will not prevent a recession or provide enough juice for a recovery out of one.
Another issue is that the FED has built up a huge balance sheet that it is reducing slowly. The owned securities were acquired as part of QE.
As of 4/5/23, the FED owned $7.772+ trillion in U.S. treasuries and mortgage backed securities.
https://www.newyorkfed.org/markets/soma-holdings
So a natural question to ask is when does the current tightening cycle end? Does it end when the FED stops raising the FF rate and then cuts, or when the FED reduces its bloated balance sheet to something approaching normal levels?
Another issue is whether the FED's current policies are sufficient to tame problematic inflation. The primary cause of stock market weakness has been problematic inflation.
https://www.fidelity.com/learning-center/trading-investing/whats-next-for-stocks
While investors are currently expecting an aggressive FED pivot later this year, that is going to depend on inflation coming down and an economic slowdown consistent with recessionary conditions. The FED has in the past continued a tightening cycle even with a banking crisis developing and a recession. I am referring to the Savings and Loan crisis that started with the aggressive Volcker FED hikes and 2 recessions in 1980-1982.
https://www.investopedia.com/articles/economics/08/past-recessions.asp
https://www.federalreservehistory.org/essays/savings-and-loan-crisis
A lot to take in. There are many variables, many not all that positive.
DeleteThe debt ceiling will come in the middle of this.
Land: The House Republicans are certainly capable IMO of causing a U.S. debt default, even after being unable to agree among themselves of a detailed spending cut plan. So far the House Republicans have been unable to internally agree on what they want.
Deletehttps://www.nbcnews.com/politics/congress/tensions-mccarthy-top-republicans-complicate-debt-ceiling-rcna78664
https://www.axios.com/2023/04/08/gop-dysfunction-fuels-dems-hardball-budget-tactics
The best hope may be that a few House republicans are responsible enough to break with leadership and vote with the Democrats to increase the budget limit. I am not sure who, if anyone, falls into that category.
++
As to buying bonds, there is some yield pick up compared to money market funds.
Bond yields have come down a lot over the past month or so and consequently make them less attractive compared to current MM yields like the Vanguard MM funds.
The issue is when will the FED pivot to cutting the FF rate and by how much. The current forecast is that the cuts will start later this year.
MM yields will quickly go down in response to FED rate cuts. Bonds that I now own, bought with yields higher than the MM funds, will provide for higher yields longer when short term yields come down.
There are a number of short term investment grade bonds that can be bought with YTMs of close to 7%, but there are risks. I am referring to SU bonds issued by regional bank holding companies like Fifth Third and Huntington.
E.G. Fifth Third 4.3% SU Maturing on 1/16/24
Last Trade Price $97.90 (4/7/23)
Last Trade Yield 7.170%
https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C602945&symbol=FITB4072228
The collapse in SVB sent shock waves throughout the regional bank bond sector.
+++
Tennessee had a tax on dividends and interest income that was repealed. Excluded from the tax was treasury interest income including "dividends" source from treasury interest. I went through every information package that disclosed how much of the dividend was sourced from treasury interest which was time consuming given my holdings.
There is at least one state that requires that dividends sourced from direct ownership of treasuries exceed a certain level before allowing an exclusion from state income tax. I recall that NY had such a rule that prevented my much older brother from excluding any dividends paid by a Fidelity Government MM fund.
https://thefinancebuff.com/state-tax-exempt-treasury-fund-etf.html#htoc-ca-ny-and-ct-residents
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2023/04/amkby-arow-bhk-cfg-clpr-cvbf-onb-opbk.html