AMCR, CAG, CTO, EAI, EMP, FMAGX, FSPHX, GRX, KHC, MRCC, O, PSEC, SAR, TPVG, UMHPRD, WTFCM

Economy: 

Fed Chair Powell calls inflation 'too high' and warns that 'we are prepared to raise rates further' There was nothing new IMO in that speech. Powell will be making these statements until the FED is ready to cut rates. Core inflation is still too high, but the FED has not yet given enough time for its interest rate hikes made so far to bring inflation down further. 

Existing-Home Sales -2.2% in July While sales declined, the median sales price rose 1.9% to $406,700. Home sales drop again in July, as supply drops again: CNBC 

Historical US Home Prices: Monthly Median from 1953-2023

What's gone wrong with China's economy | CNN Business; China’s Property Crisis: Why It’s So Hard for Beijing to Fix - The New York Times Paul Krugman opined in a column last week that China may soon have its "Minsky Moment", and its government may be unable to deal with it. Opinion | How Will a Chinese Financial Crisis Impact the World? - The New York Times Krugman estimates that the negative blowback to the U.S. would be relatively minor. I was not convinced by that argument.  

The Minsky Moment phrase originates from a paper written by Hyman Minsky  titled  "The Financial Instability Hypothesis" which is republished here: The Financial Instability Hypothesis. Working Paper No. 74. Levy Economics Institute This economic theory gain considerable notoriety during the 2008-2009 Near Depression period which I discussed here during that period. The Minsky Moment is the "end stage of a prolonged period of economic prosperity that has encouraged investors to take on excessive risk, to the point where lending exceeds what borrowers can pay off."  

(See also, What’s a Minsky Moment, and Why the Worries About One - The Washington Post A destabilization event, such as a rise in interest rates, results in selling off assets at depressed prices to raise money that sends "markets into a spiral amid a demand for cash"; Minsky Moment | Definition, Factors, Indicators, & Measures)

As previously discussed, regional bank funding issues will cause a widespread credit tightening cycle. The funding issues involve deposit flight, customers reducing interest free deposits, and increases in deposit and borrowing costs.  

S&P downgrades by a single notch 5 U.S. banks citing 'tough' operating conditions. The banks include Associated Banc-Corp (ASB); Valley National (VLY) and KeyCorp (KEY). The bonds issued by those banks have been trading for some time at yields that were inconsistent with the credit ratings, something that I noted when I recently bought VLY and ASB bonds. {Item # 3.G. Bought 2 Valley National 4.55% Maturing on 6/30/23 at a Total Cost of 92.752 (6/10/23 Post), noting that the 8.447% YTM was inconsistent with a BBB- rating}.  In other words, the Bond Ghouls had already downgraded the credit ratings prior to S&P taking that action. S&P viewed these banks as having potential risks in multiple areas. I recently eliminated my small ball position in KEY, Item # 3.H. (7/22/23 Post). Earlier this year, I eliminated a duplicate VLY position. Item # 2.M. Eliminated VLY in Fidelity Account - Sold 15+ at $11.76 and Item # 2.N. Eliminated VLY in Vanguard Account - Sold 15 at $11.75 (2/5/23 Post)

Dick's Sporting Goods (DKS) Slashes Outlook Shoplifting, generally referred to as "shrink", has become a major headwind for retailers. DKS reported a $2.82 E.P.S. for the Q/E 7/29, missing the $3.81 consensus and down from $3.25 in the year ago quarter. Shrink was partly to blame as noted by the CEO: "Our Q2 profitability was short of our expectations due in large part to the impact of elevated inventory shrink, an increasingly serious issue impacting many retailers." Guidance for the current fiscal year was reduced to $11.33-$12.13 from $12.9-$13.8. I do not own any retail stocks. 

Heineken sells Russian business for $1 as it completes exit I doubt that western companies will return to Russia. Western nations need to permanently prohibit their citizens and companies from buying Russian debt and stocks or making any capital investment in Russia. Treasury bans Americans from buying Russian stocks and bonds 

Russia is a Kleptocracy controlled by a violent psychopath who has imperialistic ambitions. If western companies make the mistake of resuming operations through new capital investments, it will only be a question of time before Russia does something that will cause those investments to lose all or almost all of their value. Since there is no independent judiciary, there is no legal protections that exist independent of Russia's dictator. Russia is just not worth the trouble or risk; and that conclusion is an obvious one for western companies to draw. 

++++

Allocation Shifts Discussed in this Post: 

Treasury Bills Purchased at Auction: $5,000 in principal amount

Corporate Bonds: $3,000 in principal amount

CDs: $2,000

Exchange Traded First Mortgage Baby Bonds: +$431.4 (weighted yield at 5.665%)

Equity Preferred Stocks: +$215.15 (weighted yield at 7.48%)

Outflow Common Stocks: -110.23

(consisting of $849.88 in proceeds minus $739.65 in purchases)

Weighted average yield stock purchases: 6.96%

Realized Gains Common Stocks: +$177.68

Inflow Stock Funds: +$147.6

Net Inflow Stocks/Stock Funds: +$37.37

2023 Net Outflow Stocks/Stock Funds: -$37,033.84 

The 2023 outflow is primarily due to the risk free yields available now. 

Treasury Yield Curve August 2023: 

CBOE Volatility Index (VIX) Long Term Chart-St. Louis Fed

Current Movement: Stable Vix Pattern, movement under 20. The SVP ends when there is a Trigger Event that ushers in the Unstable Vix Pattern. Examples of Trigger Events can easily be seen in the long term chart linked above. There is a long period when there is consistent movement below 20 and then a major spike in the VIX that is inconsistent with a SVP. 

+++++

Trump and His Cult: 

Trump campaign promotes mug shot shirts, mugs, more merchandise that read "Never Surrender" - CBS News  

RealClearPolitics - Election 2024 - 2024 Republican Presidential Nomination

RealClearPolitics - Election 2024 - General Election: Trump vs. Biden

CBS News poll finds Trump's big lead grows, as GOP voters dismiss indictments - CBS News  This is another interesting result from this recent poll: 

On the positive side, the 71% who believe Trump is honest is down some from an earlier poll where 81% of republicans viewed Donald as honest and almost as many considered him a role model for their children.  

Why Republican voters believe Trump  

Majority of likely Iowa GOP caucus goers say Trump won 2020 election

Trump did reveal his core personality in his mug shot. Trump's mug shot caps off a messy week for American politics  

Legal scholars increasingly raise constitutional argument that Trump should be barred from presidency; Trump Is Constitutionally Prohibited From the Presidency - The Atlantic; The Sweep and Force of Section Three by William Baude, Michael Stokes Paulsen (preprint of law review article available for download). The argument is based on section 3 of the 14th Amendment: 

The scholars are correct that this section does not require a criminal conviction for an "insurrection or rebellion". Personally, I believe the facts establish that Trump clearly violated his oath of office in the manner required by §3 of the 14th Amendment. 

As a practical matter, I do not see Trump being barred from becoming President, or being removed if elected in 2024, by a court without a criminal conviction directly on point and the exhaustion of all appeals. If a judge is brave enough to do so, then it would need to be quickly affirmed in a 9-0 Supreme Court decision, or there would be major civil unrest.   

Even if Trump was elected in 2024, and convicted in the insurrection criminal trial, removal would then likely require yet another proceeding, either a conviction in the Senate after a House impeachment, which will never secure enough republican votes no matter how justified, or a court willing to order his removal under section 3 that was upheld on appeal to the Supreme Court. The argument would be something like the conviction was not tantamount to an insurrection within the meaning of §3 given its historical context.  

Trump Lawyer To Trump Appointed Judge Cannon: Take Action Against Jack Smith

Witness # 4 in the documents case, Yuscil Taveras, was represented by Stanley Woodward, an attorney paid by Trump's PAC, who also represents Walt Nauda with his attorneys fees paid by the same Trump PAC. After firing Woodward for an alleged conflict of interest, he hired another lawyer and decided to tell the truth, implicating Donald, Nauda and Oliveira in an alleged criminal conspiracy to obstruct justice. Witness in Trump Documents Case Changed Lawyers, and Then Testimony - The New York Times; Trump employees lied to D.C. grand jury on classified documents, filing alleges - The Washington Post 

On behalf of Nauda, Woodward filed a motion before the Trump appointed district court judge Aileen Cannon seeking to suppress Taveras' testimony, claiming in part that Woodward's conflict of interest warranted excluding that testimony which could result in his client being convicted if heard by the jury. The DOJ responded to that argument in this filing. Reply Motion for Garcia Hearing Woodward (pp. 9-11): 

What can we say about Judge Cannon if she grants that request? I do not see how Woodward could continue representing Nauda if Taveras testifies at trial, and that may explain the frivolous attempt to suppress the testimony.  

GOP senator Bill Cassidy says Trump should drop out and calls classified documents case a 'slam dunk' Based on what I know now, the documents case against all defendants is a slam dunk. An acquittal could only occur through jury nullification or Judge Cannon suppressing evidence that the prosecution needs for convictions. Both are significant possibilities IMO. Nonetheless, it would be advisable for Trump's co-defendants, Carlos De Oliveira and Walt Nauda, to accept a plea deal for truthful testimony against Donald, but it is far from certain that their current attorneys would advise them to do so. Trump co-defendants head to court in classified documents case; DOJ Motion for  Attorney Conflict Hearing.pdf 

Tim Sheehy, GOP Senate Hopeful, Double Dips On Climate Change Sheehy was a believer in climate change until he decided to run as GOP candidate. Now Sheehy rails against the climate change "cult" and what he calls the "disastrous socialist Green New Deal".

House Judiciary Committee expected to launch inquiry into Fulton County District Attorney Fani Willis The republicans believe that they have the authority to investigate a state D.A. who presents a case against republicans to a state grand jury who indicts them for alleged criminal violations of state law. In other words, they believe in "States Rights" against federal encroachment only when it is politically advantageous to do so.   

++++

Putin and His Pathological Orwellian State: 

Last weekend, the Orcs launched a missile attack at downtown Chernihiv, murdering seven civilians including a 6 year old girl and wounding over 150 people including 12 children. The area was filled with civilians who were returning from Church after celebrating the Apple Feast of the Savior, an Orthodox festival. Deadly Russian Strike Hits Chernihiv-The New York Times This attack is a war crime and crime against humanity or, in other words, typical Russian behavior.  

Russia routinely committed war crimes and crimes against humanity when it attempted to capture Chernihiv in early 2022. The Siege of Chernihiv, Ukraine | The New Yorker ("As many as fifty people were killed each day, struck down while in line for food or huddling in their apartments."). The Orcs targeted apartment building and other civilian buildings for destruction. 

Video: Chernihiv missile strike hits as woman smiles for camera | CNN

Why Russia’s War in Ukraine Could Run for Years - WSJ I currently view a long war as the more probable than not scenario but there are certainly more favorable options that could unfold for Ukraine in the near future. 

Putin is in a box of his own creation, where winning is his only option. Winning is also the only option for Ukraine given Putin's only option. 

And, as long as Ukraine has the ability to fight, offering territory to Russia in exchange for a peace agreement is not a viable option since Russia never honors its agreements and will do whatever it can thereafter to end Ukraine's independence and to disrupt its economy until all of Ukraine is either annexed into Russia or rendered as impotent and servile to Russia as Belarus. 

Russian Tu-22M3 Supersonic Bomber Obliterated in Fiery Drone Strike: Photos The plane was parked in Novgorod which is closer to St. Petersburg than Moscow. 

Video: Ukrainian forces destroy Russian anti-aircraft system in Crimea | CNN

Ukrainian special forces conduct daring raid on Crimean shore - YouTube; Ukraine claims Crimea landing in 'special operation'; In Special Operation, Ukraine Raises Flag In Russian-Annexed Crimea On Independence Day

Top Russian general Sergey Surovikin who vanished after Wagner rebellion fired as head of aerospace forces 

Luna-25: Russia's first moon mission in decades fails as spacecraft collides with surface  

Russia's 2022 GDP was lower than South Korea and barely above Brazil which is pathetic given Russia's natural resources. Top 15 Countries by GDP in 2022 | Global PEO Services The GDP comparisons with other much smaller nations without those resources proves beyond any reasonable doubt how incompetent Putin is as a leader. He tries to project competence with his demeanor and PR through state controlled media, but the numbers do not lie.  

The U.S. warned its citizens to leave Belarus immediately. Alert-U.S. Embassy Minsk, Belarus - U.S. Embassy in Belarus

I am only surprised that Putin did not kill Prigozhin earlier. The preliminary conclusion reached by U.S. intelligence was that Prigozhin and several other Wagner leaders were murdered, not by a surface-to-air missile, but by a bomb placed on board the plane. In true gangster fashion, Putin offered his condolences to the families of his victims. Putin sends 'condolences' over Prigozhin plane crash Maybe he will send some flowers to their funerals. The Kremlin denied any involvement.  

Putin is obviously pure evil as was his former buddy Prigozhin. At least Prigozhin did not routinely try to cloak his glaring satanic qualities, as Putin does, in a paper thin veneer of being a Christian.  

+++

1. Small Ball Buys: 

A. Added to GRX - Bought 5 at $9.52: 

Quote: Gabelli Healthcare & Wellness Trust Overview

Sponsor's website: Healthcare and Wellness Rx Trust - GAMCO Investors, Inc.

Top 10 Holdings as of 6/29/23: 

Leveraged: Yes with preferred stock that has a 4% coupon and is subject to a mandatory redemption on 12/26/25.

Last Discussed: Item # 4.A. Added to GRX - Bought 8 at $10.02 (8/5/23 Post) 

Data Date of 8/17/23 Purchase:

Closing Net Asset Value per share: $11.47

Closing Market Price:  $9.49

Discount: -17.26%

Average 3 year discount: -13.82%

Sourced: GRX  - CEF Connect 

Average cost per share: $10.84 (115+ Shares)

Dividend: Quarterly at $.15 per share

Yield at AC: 5.54%

Last Ex Dividend: 6/14/23

Gabelli Health & Wellness (GRX) Quote | Morningstar (currently rated 3 stars)

Gabelli Health & Wellness (GRX) Portfolio | Morningstar

B. Added to CTO - Bought 3 at $16.65: 

Quote: CTO Realty Growth Inc. (CTO)

Cost: $49.95

Management: External

CTO SEC Filings

2022 Annual Report

10-Q for the Q/E 6/30/23 (As previously discussed, CTO provides management services to Alpine Income Property Trust Inc. (PINE). During the 2nd quarter, CTO received $2.288M in management and other fees from PINE plus $88K in dividends for its 14.8% equity interest in PINE, see page 18) I own a few PINE shares.)  

Website: Home - CTO Realty Growth, Inc.

Properties: 24 with 4.2M square feet

Last Discussed: Item # 2.F. Added to CTO - Bought 10 at $16.66 (6/17/23 Post) I discussed the 2023 first quarter report in that post. SEC Filed Earnings Press Release and Supplemental

Investment Category: Equity REIT Common and Preferred Stock Basket Strategy

New Average cost per share: $18.52 (55+ shares)

Dividend: Quarterly at $.38 per share ($1.52 annually)

CTO Dividend History | Seeking Alpha

I am reinvesting the dividend and will continue to do until the market price is below my average cost per share. 

Yield at AC = 8.21%

Last Ex Dividend: 6/7/23

Last Earnings Report (Q/E 6/30/23): 

SEC Filed Press Release; SEC Filed Investor Presentation; and SEC Filed Supplemental 

FFO, Core FFO, AFFO per share: $.40, $.43, $.48 respectively

Net Income to AFFO Reconciliation: 

I do not view the AFFO number as equivalent to cash available for distribution. For some reason, straight line rent of $122K is added to core FFO rather than deducted, which I can not explain, and there is no deduction for routine maintenance expenses. The company owns 16 properties that have multiple tenants and those properties would generally not be leased on a triple net lease basis. 

There is information provided in the Supplemental on capital expenditures and allowances for tenant improvements that indicate that Cash Available for Distribution ("CAD") may be lower than AFFO; but I am not able to break out routine maintenance expenses from capital costs that improve the value of the property that are not deducted from FFO in the CAD calculation. 

In a proper FFO to AFFO calculation, where AFFO would be equivalent to "CAD", which is shown below, maintenance expenses are deducted from FFO: 

DEA Press Release for the Q/E 6/30/23

The bottom line is that I suspect that CAD per share covers the quarterly dividend, but I do not have enough information to draw a conclusion. 

Leased Occupancy: 93.4%

Occupied: 91.4%

In addition to owning real estate, CTO loans money secured by real estate. 

Page 17, 10-Q

CTO also owns subsurface rights and mitigation credits that are explained at page 19 of the 10-Q. I do not view those interests as material. 

Debt: Almost entirely variable rate at spreads to SOFR that are fixed through swap agreements with various expiration dates. 

2023 Outlook:

Core FFO per share: $1.5 to $1.55

AFFO per share: $1.64 to $1.69

Last Acquisition: CTO Realty Growth Announces Acquisition of 446,500 Square Foot Retail Power Center in Dallas, Texas for $61.2 Million (6/12/23)

C. Added to MRCC - Bought 5 at $7.3: 

Quote: Monroe Capital Corp.  (MRCC) - Externally Managed BDC

Cost: $36.6

MRCC SEC Filings

MRCC 2022 Annual Report

10-Q for the Q/E 6/30/23 (Summary of investments starts at page 8; estimated impact of interest rate changes on net investment income at page 92; borrowings discussed starting at page 61, note that average interest costs rose to 6.7% from 4.1% in the 2022 second quarter)

Last Discussed: Item # 2.  Started MRCC - Bought 20 at $7.73 (6/10/23 Post)  

Average cost per share: $7.64 (25 shares) 

Dividend: Quarterly at $.25 per share 

Monroe Capital (MRCC) Dividend History | Seeking Alpha

Yield at New AC = 13.09%  

(regular dividend only, and assumes continuation of the current penny rate which is not an assumption that I would make)

Last Ex Dividend: 6/14/23 (owned 20 as of)

Last Earnings Report (Q/E 6/30/23): SEC Filed Press Release 

NII per share: $.27

Adjusted NII per share: $.38 

Net Asset Value per share: $9.84

I provided information of the net asset value per share history in my last discussion. I would describe this history as unfavorable.   

"The Company’s portfolio consists primarily of first lien loans, representing 83.3% of the portfolio as of June 30, 2023. . . As of June 30, 2023, the weighted average contractual and effective yield on the Company’s debt and preferred equity investments was 12.2% and 12.2%, respectively . . .  As of June 30, 2023, 1.3% of the Company’s total investments at fair value were on non-accrual as compared to 0.4% as of March 31, 2023."

MRCC Analysis of Credit Risks: 

Page 71 10-Q

Goal: Any total return in excess of the dividends paid. 

I do not have access to any brokerage reports. 

I am aware that this last earnings report caused two analysts to downgrade their price targets while keeping their neutral ratings. Oppenheimer reduced its PT to $9 from $10. B. Riley went to $8 from $8.25. 

Purchase Restriction: 5 to 10 share lots with each subsequent purchase required to be at the lowest price in the chain. 

Maximum Position: 100 shares. I view this small BDC as riskier than the average BDC and its net asset value history adds to my trepidation.   

D. Added to CAG - Bought 3 at $29.77; 2 at $29.61: 

Quote: Conagra Brands, Inc.

Cost: $148.53

CAG SEC Filings

CAG Analyst Estimates | MarketWatch

Brands | Conagra Brands

New Average cost per share: $31.02 (17 shares) 

Dividend: Quarterly at $.35 per share ($1.4 annually)

Conagra Brands, Inc. (CAG) Dividend History | Seeking Alpha

Yield at New AC: 4.51%  

Last Ex Dividend: 7/28/23

I discussed the last earnings report in this post: Item # 3.E. Restarted CAG - Bought 5 at $33 (7/15/23 Post); SEC Filed Earnings Press Release

E. Added to KHC -Bought 5 at $33.34:

Quote: Kraft Heinz Co.

KHC Analyst Estimates | MarketWatch

KHC SEC Filings

Cost: $166.7

New Average cost per share: $34.44 (20 Shares)

Dividend: Quarterly at $.40 per share

Dividend History | The Kraft Heinz Company

Yield at New AC = 4.65%

Next Ex Dividend: 8/31/23

I discussed the last earnings report in this post: Item # 1.E. Added to KHC - Bought 5 at $35 (8/12/23 Post);  SEC Filed Earnings Press Release for the F/Q Ending 7/1/23 

F. Added to AMCR - Bought 5 at $9.34: 

Quote:  Amcor PLC

Cost: $46.7

Amcor PLC Profile | Reuters

AMCR SEC Filings

AMCR Analyst Estimates | MarketWatch

Website: Global Packaging Solutions | Amcor

SEC Filed Annual Report for the F/Y Ending 6/30/23 

P. 32, Comparing F/Y 2023 with F/Y 2022

Amcor is a global packaging company. 

AMCR earnings and profit margins have been pressured by input cost inflation and negative currency impacts. The current stock price IMO reflects a consensus opinion that this problem will continue for an extended period, which is at least a reasonably questionable opinion. 

Last Discussed: Item # 3.I. Added to AMCR - Bought 5 at $10.7; 5 at $9.94 (5/6/23  Post) I discussed the 2023 first quarter report in that post. SEC Filing and SEC Filed Slide Show

I have previously eliminated my duplicate positions. Item # 5. Eliminated AMCR in 2 Taxable Accounts - Sold 20 at $12.05 and 10+ at $12.03 (1/23/23 Post)(profit snapshots = $26.93)

New Average cost per share: $11.45 (115 shares)

Dividend: Quarterly at $.1225 ($.49 annually)

Shareholder Dividends | Amcor

Yield at AC = 4.38%

Yield at $9.34 = 5.25%

Next Ex Dividend: 9/6/23

Last Earnings Report (Q/E 6/30/23): This was for the 4th fiscal quarter. Amcor reports in USDs. 

SEC Filed Press Release and SEC Filed Slide Presentation 

Revenues: $3.673B, down 5% on a constant currency basis. 

GAAP net income = $181M

Adjusted Free Cash Flow for fiscal 2023 was $848 million and compares with $1,066 million last year. The year over year variance largely reflects higher interest payments and lower accounts payable balances resulting from moderated purchasing activities due to lower demand and inventory reduction initiatives. June 2023 quarter Adjusted Free Cash Flow of $834 million compares with $803 million in the same quarter last year.

Amcor repurchased approximately 41 million shares (approximately 3% of total shares issued and outstanding) during fiscal 2023 for a total cost of $431 million

Amcor expects to allocate approximately $70 million of cash towards share repurchases in fiscal 2024, as part of the program previously announced in fiscal 2023.

F/Y 2024 Guidance: Adjusted E.P.S. of $.67 to $.71 with adjusted free cash flow of $850M-$950M. 

AMCR "expects adjusted EPS on a reported basis in the first half of fiscal 2024 to be down in the mid-teens % compared with the first half of fiscal 2023, primarily due to lower volumes and the residual headwinds related to the sale of the Russia plants and higher interest expense. In the second half of fiscal 2024, adjusted EPS is expected to be up mid-single digits % compared with the second half of fiscal 2023, benefiting in-part from structural cost saving initiatives and increased earnings leverage resulting from price and cost actions taken in fiscal 2023 and 2024."  (emphasis added; in thousands)

The Stock Jocks will pay more attention to the unfavorable forecasts for the 1st and 2nd fiscal quarters and downplay the upbeat forecasts for the 3rd and 4th fiscal quarters. 

Total Debt: $6.756B

AMCR debt includes notes issued by subsidiaries that are guaranteed by Amcor: 

See also pages 85 - 87 of the Annual Report. 

I own 2 of the Amcor Flexibles North America 4% SU, guaranteed by AMCR, that matures on 5/17/25. Bond Page | FINRA.org

G. Added to O - Bought 1 at $56.07: 

Quote: Realty Income Corp. (O) 

New Average cost per share:  $57.74 (11 shares)

Dividend: Monthly at $.2555 last raised from $.2550 effective for the July payment. 

Realty Income Corporation (O) Dividend History | Seeking Alpha

Yield at New AC: 5.31%

Next Ex Dividend: 8/31/23

I discussed the last earnings report in my last post and have nothing further to add here. Item # 2.D. Added to O - Bought 3 at $58.97; 1 at $58.63; 2 at $58.08; 2 at $56.9  (8/19/23 Post); SEC Filed Press Release.

H. Added to PSEC - Bought 10 at $6.04- Fidelity Account: 

Cost: $60.4 

Quote: Prospect Capital Corp.  (PSEC) - Externally Managed BDC

SEC SEC Filings

Annual Report for the F/Y Ending 6/30/22 (Risk factor summary starts at page 30 and ends at 77)

Last Discussed: Item # 2.F. Eliminated PSEC in Two Taxable Accounts - Sold 20 at $7.39; 20 at $7.4 ( Post)(profit snapshots = $95.56)(contains snapshots of trades that were not discussed in the blog)  

New Average cost per share: $5.29 (30) shares)

This add slightly raised my AC per share from $4.92.

Dividend: Monthly at $.06 per share ($.72 annually)

PSEC Dividend History | Seeking Alpha

Dividend History: Unfavorable with several dividend cuts

Yield at New AC = 13.61%

Next Ex Dividend: 8/28/23

Net Asset Value per share history: 

Unfavorable IMO over its history as a public company, but showing signs of stabilization since 2017. I would make some allowances for PSEC being a public company when the Near Depression hit in 2008.  

3/31/23:    $9.48 10-Q at page 4 

12/31/22:  $9.94

12/31/21:   $10.01

12/30/20  $8.96 10-Q p. 4 

6/30/20:  $8.18  10-K p. 122 

6/30/19:   $9.01

6/30/18    $9.35

6/30/17    $9.32

6/30/15    $10.31

6/30/14    $10.56    PSEC 2014 10-K

6/30/09   $12.40    Form 10-K at page 46

6/30/08   $14.55

6/30/06   $15.31

IPO in July 2004 at $15   

Last Earnings Report (Q/E 3/31/23): This report was for the 3rd fiscal quarter. 

SEC Filed Press Release 

The next earnings report is scheduled for release on 8/29/23.

NII per share: $.21

Number of portfolio companies: 127  

10-Q for the Q/E 3/31/23 (summary of investments starts at page 9)

PSEC had controlling interests in several companies that are discussed at pp. 98-109, 117 and 122-125. I have insufficient information to evaluate those investments. 

Controlled and Non-Controlled Investments: 

Page 117

Estimated Impact on NII From Changes in Interest Rates:

Page 144

"As of March 31, 2023, the cost basis of investments for tax purposes was $7,792,689 resulting in an estimated net unrealized loss of $199,912. As of March 31, 2023, the gross unrealized gains and losses were $1,332,087 and $1,531,999, respectively." P. 94 (in thousands)

Some Sell Discussions: Item # 1.G. Sold 5 PSEC at $8.12 (9/24/21 Post)(profit snapshot = $13.71); Item #1.P. Multiple Small Ball Purchases of PSEC-Sold 105 and Kept 42+ (2/27/21 Post)(profit snapshot = $38.88); Item # 1.N. Sold All PSEC Shares Purchased with dividends at $7.8 (4/17/21 Post)(profit snapshot = $46.97); Item # 7. Sold  100 PSEC at $10.65 -RI Account_(9/6/14 Post)(profit snapshot = $30.99); Item # 2 Sold 100 PSEC at $10.83-RI Account (6/1/12 Post)(profit snapshot  = $60.47); Item # 1. Sold 100 PSEC at $11.36 - Regular IRA Account (6/19/12 Post)(profit snapshot = $39.6); Item # 2 Sold 50 PSEC at $11.5-IRA Account (1/14/11 Post (no profit snapshot); Item # 2. Sold 50 PSEC In IRA at $12.16 (3/8/2010 Post)( net profit = $68.04) Two transactions in retirement accounts netted +$128.51 and were not discussed. 

Goal: Any total return before any ROC adjustment to the tax cost basis in excess of the dividends paid. 

I. Added to SAR - Bought 5 at $24.95: 

Quote: Saratoga Investment Corp. - Externally Managed BDC

SEC Filings

SEC Filed Annual Report for the F/Y ending 2/28/23 (Summary of risk factors starts at page 27 and ends at page 59)

Cost = $124.75

New Average cost per share: $26.2 (10 shares)

Dividend: Quarterly at $.71 per share ($2.84 annually)

Yield at New AC = 10.84%

Next Ex Dividend = 9/13/23

I discussed SAR in my last post and having nothing further to add here. Item # 2.G Started SAR - Bought 5 at $26.45 (8/19/23 Post) I discussed the last report in that post. SEC Filed Press Release

J. Added $50 FSPHX at $27.56: 

Quote:  Fidelity Select Health Care Portfolio Overview 

Sponsor's website: Fidelity Investments

Top 10 Holdings as of 7/31/23: 

FSPHX – Morningstar (currently rated 4 stars)

FSPHX – Performance| Morningstar (YTD -.8% through 8/21/23)

K. Added $50 FMAGX at $11.12: 

Quote: Fidelity Magellan Fund Overview 

Sponsor's website: Fidelity Investments

Top 10 Holdings as of 7/31/23: 

FMAGX-Morningstar (currently rated 3 stars)

FMAGX – Performance | Morningstar (YTD +17.56% through 8/21/23)

2. Small Ball Sells: 

A. Eliminated TPVG in All Taxable Accounts - Sold 38+ at $10.76; 11 at $10.8; 29 at $10.88:

Quote: TriplePoint Venture Growth BDC Corp. - Externally Managed BDC

Proceeds: $849.88

Last Discussed: Item # 1.H. Bought 5 TPVG in Schwab Account at  $10.67(3/19/23 Post);   In that post, I discussed what I called extremely troubling valuation marks for a $34.39M loan to Medly Health that had filed for bankruptcy. The loan was valued at $31.829M as of 9/30/22, 10-Q at page 9, and a bankruptcy petition was filed later that year. SEC Filing

Profit/Loss Snapshots: Net of +$177.68

TPVG 29 Shares +$167.29

TPVG Schwab Account 38+ shares - $47.81

TPVG 11 Shares +$58.2

TPVG Realized Gains to Date: Net of +$1,294.13

TPVG SEC Filings 

2022 Annual Report (Risk factor summary starts at page 24 and ends at page 53) 

Website: TriplePoint Venture Growth – Sponsored by the Global Leader In Venture Financing

TPVG's external manager has been making far too many mistakes as of late. 

When I reviewed the last earnings report on Thursday, I noticed that the net asset value per share had declined from $11.88 as of 12/31/22 to $10.70 as of 6/30/23. As noted in previous discussions, I was already disturbed by the net asset value decline to $11.88 during 2022. 

The net change "in unrealized losses on investments for the second quarter of 2023 was $41.6 million." No explanation was given in the press release, though the external manager did tout a $2.9M realized gain from its equity investment in Toast. 

In order to find out what caused the latest problems, I had to review the 10-10-Q for the Q/E 6/30/23 which provided far too much negative information about loans going bad. I will discuss most of them below. 

All of the following loans were made to private companies. 

The loans were performing on 12/31/22 but were on nonaccrual as of 6/30/23. 

The cost numbers will be different from the principal amount and are available in the 10-Q. The loans on nonaccrual as of 6/31/23 had a cost basis of $102.6M. 

Since it is normal that I will have very little information about private companies, I must consequently have confidence in (1) the BDC marks on valuation, (2) the underwriting standards after conducting due diligence, and (3) the judgment in making loans. When I lose confidence in all three, I will eliminate the position which is what has happened with TPVG, even when the dividend yield is good.  

VanMoof: On nonaccrual as indicated by the number (7)

Principal Amount: $22.252M/Valued at $5.484M as of 6/30/23

Value as of 12/31/22: $16.646M

VanMoof has filed for bankruptcy. Dutch e-bike maker VanMoof has gone bankrupt-NPR (8/23/23); TriplePoint BDC hurt by venture lending woes in Q2, VanMoof bankruptcy | PitchBook (8/8/23)

Hi.Q: On nonaccrual

Principal Amount: $25.117M

Value 6/30/23: $7.162M

Value as of 12/31/22: $22.598M

I know nothing about this private company which is usually the case for private companies. 

It has not filed a bankruptcy petition yet as far as I can find doing a google search. There is a class action lawsuit against the company alleging improper telemarketing that a court has allowed to proceed as a class action. Quiles v. Hi.Q, Inc.pdf. 

Demain: On nonaccrual 

Principal Amount: $17.382M

Value as of 6/30/23: $12.629M

Value as of 12/31/22: $16.762M 

I believe this company is based in France and provides insurance services.  

Underground: On nonaccrual

Principal Amount: $6M

Value as of 6/30/23: $3.168M

Value as of 12/31/22: $5.975M

This company was an online wine merchant that ceased business in May. 

The loan to Luminary was on nonaccrual on 12/31/22 and 6/30/23: 

Luminary Roli Loan Principal Amount: $35.492M

Value as of 6/30/23: $9.451M

In a prior post, I mentioned that TPVG sold a $15+M loan made to Pencil and Pixel at a near total loss during the 2022 third quarter. I made this observation there: "Prior to that Pencil and Pixel loss, I already had concerns about the judgment and underwriting standards at this BDC as well as its valuation marks. I am now hyper concerned about those issues." Item # 2.J. (12/20/22 Post) 

While BDC loans are made to risky companies, and some losses are to be expected, TPVG has gone beyond IMO what is acceptable, particularly in light of the generally strong economy. I would not want to see this parade of nonaccrual loans over such a short period, even in a mild recession. 

TPVG Dividend: Quarterly at $.40 per share

Next Ex Dividend: 9/14/23

Net asset value per share history: 

6/30/23:   $10.7

12/31/22:  $11.88

12/31/21:   $14.01

9/30/21:    $13.92

12/31/20:  $12.97

6/30/20:   $13.17

3/31/20:   $12.85

12/31/19:  $13.34

9/30/19:   $13.47
12/31/18:  $13.50  
9/30/18:   $13.59
12/31/17:  $13.25
9/30/17:   $13.39 
9/30/16:   $13.44
9/30/15:   $14.52 

IPO in March 2014 at $15

Last Earnings Report (Q/E 6/30/23): SEC Filed Press Release 

NII per share: $.53

Net Asset Value per share: $10.7

"Achieved a 14.7% weighted average annualized portfolio yield on total debt investments for the quarter"

Estimated spillover income per share as of 6/30/23: $.90

Net decrease in net asset value per share: $.59 

Prior Sell Discussions: Item # 2.J. Pared TPVG in Fidelity Taxable Account- Sold 5 at $16.95;5 at $18.83 and Item #2.K. Pared TPVG in Vanguard Account - Sold 3 at $17.62 (11/26/21 Post)(profit snapshots = $84.38 and $30.46); Item #3.R. Finished Selling Fractional Shares Bought with Dividends-Fidelity Account  (6/4/21 Post)(profit  =$2.01); Item # 1.L. Sold 5 TPVG at $15.67 in Schwab Taxable and Item #1.M. Sold 11 TPVG at $15.67-highest cost shares in Fidelity Taxable (5/16/21 Post)(profit snapshots  = $74.43); Item # 1.R. Pared TPVG in Fidelity Account-Sold 5 at $15.35 (4/9/21 Post)(profit snapshot = $20.74); Item # 1.C. Pared TPVG-Sold 4 at $14.85 (4/1/21 Post)(profit snapshot = $13.71); Item # 3.K. Pared-Sold 9 at $13.13-Lots Bought with Dividend (1/30/21 Post)(profit snapshot = $26.95); Item #1.L. Pared TPVG in Vanguard Taxable Account-Sold 10 at $12.41 (8/22/20 Post)(profit snapshot = $17.1; contains snapshots of prior round-trip trade profits); Item # 2.L. Pared TPVG in Vanguard Taxable Account-Sold 10 at $12.6 (8/15/20 Post)(profit snapshot $9.99); Item # 1.J. Eliminated TPVG in Schwab Taxable Account-Sold 30 at $10.58 (8/8/20 Post)(profit snapshot = $94.3); Item # 2.A. Pared TPVG-Sold 14 shares at $15.61-Used Commission Free Trade (9/1/2019 Post)(profit = $46.33); Item # 2.A. Sold 74+ TPVG at $14.87 (7/20/19 Post)(profit snapshot= $246.43 - largest gain single transaction); Item # 4.C. Eliminated  TPVG in Roth IRA Account (4/17/19 Post)(profit snapshot = $88.87); Item # 3.B.(4/14/19 Post)(profit = $71.76); Item 3.A. Sold 40 TPVG at $13.44-Schwab Account and Item #3B Sold 50 TPVG at $13.39 Vanguard Roth  IRA (3/13/19 Post)(profit snapshots of $4.17 and $4.49 ); Item 2.B. Sold 50 TPVG at $13.39 (3/4/2017 Post)(profit snapshot = $153.08); Item # 3 Sold 50 TPVG at $12.33 (1/16/17 Post)(profit snapshot = $83.48) 

Goal: Any total return prior to any ROC adjustments in excess of the dividends paid.  

There was no ROC support for the dividend payments in 2019-2022. Tax Information I did not check further back in time. 

TPVG's external manager has lost my confidence. I see no rational reason to trust their loan valuation marks, nor do I have a factual basis for believing that the worst is over.  

Current Position: 3+ shares in 1 Roth IRA account. I also sold all shares in Roth IRA accounts except for those purchases with dividends in my Fidelity Roth IRA. In retirement accounts, Fidelity will assign a zero cost basis to shares purchased with dividends. I am down to owning 3+ TPVG shares with a zero cost basis.  

2023 Roth IRA Sales: +$39.58   (7 shares)(no snapshots)

2. Corporate Bonds: $3,000 in principal amount

A. Bought 1 Entergy Louisiana 3.78% First Mortgage Bond Maturing on 4/1/25 at a Total Cost of  97.06:

Issuer: Wholly owned subsidiary of Entergy Corp. (ETR).

Entergy Louisiana operating results are separately included in ETR reports. 

ETR 10-Q for the Q/E 6/30/23 (pages 127 - 132)

I recently discussed adding to ELC, a $25 par value exchange traded first mortgage bond issued by Entergy Louisiana Item # 2.A. Added to ELC - Bought 5 at $21.85 in Fidelity Taxable Account (8/12/23 Post); 

I prefer owning shorter term FM bonds issued by Entergy subsidiaries where I have more control of interest rate risk issues. 

New Finra Page: Bond Page | FINRA.org

Credit Ratings: A2/A

YTM at Total Cost: 5.711%

YTM at Purchase Price of 96.963: 5.78%

Current Yield at Total Cost: 3.89%

B. Bought 2 Brookfield 4% SU Maturing on 1/15/25 at a Total Cost of 97.27: 

Filled at 97.17, TC at 97.27

Issuer: Brookfield Corp. (BN), formerly known as Brookfield Asset Management. Brookfield spun out a 25% interest in Brookfield Asset Management (BAM) and renamed itself Brookfield Corporation. Brookfield Corporation Successfully Completes Distribution of 25% Interest in its Asset Management Business (12/9/22)

2022 SEC Filed Annual Report 

SEC Filed Report for the Q/E 6/30/23 

New Finra Page: Bond Page | FINRA.org

Credit Ratings: A3/A-

YTM at Total Cost: 6.064%

Current Yield at TC = 4.11%

I am replacing in advance of maturity 2 Brookfield 4% SU bonds that mature on 4/1/24. Bond Page | FINRA.org

3. Treasury Bill Purchases At Auction: 

I have $51K in treasuries and CDs maturing on 8/31/23 through 9/30/23. At least 80% of the proceeds will be used to buy 3 month treasury bills at auction.

Given the significant decline in realized capital gains this year, probably down to a $5K to $10K range with the annual goal at $25K+, I am pushing as much taxable income into 2023 as possible. Next year will most likely be at a higher marginal tax rate. If I buy a 4 month T Bill in September, and hold to maturity which I always do with auction purchases, the interest would be taxable in 2024 when the bill matures. 

Proceeds to be received in October ($75K) will mostly be redirected into 2 month T Bill auctions for the same reason. I want the income taxed in 2023.   

A. Bought 5 Treasury Bills at the 8/23/23 Auction - Schwab Account: 

119 Day Bill

Matures on 12/26/23

Interest = $87.85

Investment Rate: 5.5%

4. CDs - FDIC Insured: 

A. Bought 2 Wells Fargo 5.25% CDs Maturing on 2/24/25: 

Interest Paid Monthly

5. Equity Preferred Stocks: 

A. Started UMHPRD - Bought 5 at $21.23: 

Quote: UMH-PD 

Issuer: UMH Properties Inc.  (UMH) - A REIT that owns manufactured home communities. 

UMH SEC Filings 

UMH SEC Filed Report for the Q/E 6/30/23 

UMH 10-Q for the Q/E 6/30/23 

Equity Preferred Stock - Senior only to common stock

Prospectus 

Par Value: $25

Coupon: 6.375%

Yield at $21.23: 7.51%

Dividends: Paid quarterly, non-qualified (pass through entity) and cumulative

Last Ex Dividend: 8/14/23

The company has an ATM program for the preferred stock, selling 1.6M shares during the first six months of 2023. 

Call Protection: Expired on 1/22/23

Maturity: None, potentially perpetual

Stopper Clause: I would give an "C" to the lawyer who wrote the Stopper Clause language: 

While poorly written, there is enough there to require UMH to eliminate its cash common share dividend before deferring the cumulative preferred dividend. The key phrase is at the end: "unless we also have declared and either paid or set aside for payment full cumulative dividends on the Series D Preferred Stock for all past dividend periods." 

In the past when a company has deferred cumulative preferred dividends, and then resumed a common share cash dividend, all of the deferred dividends were then paid, but no interest is paid on the deferred amount. Junior bonds that permit deferral of interest payments, when no cash is paid on the more junior securities, will frequently require interest on the deferred amount at the coupon rate. That is not the case for equity preferred stocks.  

The other preferred shares referenced in that excerpt have been called at their $25 par values + accrued and unpaid dividends. UMH Properties Completes its Redemption of its 8% Series B Preferred Stock; UMH Properties Completes its Redemption of the 6.75% Series C Preferred Stock (7/6/22 Press Release).  

B. Added 5 WTFCM at $21.8: 

Quote: Wintrust Financial Corp. Fixed/Floating Non-Cumulative Preferred Series D  (WTFCM)

Issuer: Wintrust Financial Corp. (WTFC) - A Bank Holding Company 

WTFC SEC Filed Earnings Press Release for the Q/E 6/30/23 

WTFC SEC Filings

Last Discussed: Item # 5.A. Started WTFCM - Bought 10 at $22.9 (8/5/23 Post) 

Prospectus

Par Value: $25

Coupon: 6.5%

Stopper Clause: Standard  

As previously discussed, this is a fixed-to-floating rate preferred stock. 

The coupon will transition to a 4.06% spread to the 3 month Libor rate, if not called, for the quarter starting on 7/15/25. Most likely, the 3 month Term SOFR rate + a tenor spread of .26161% will be used instead of the now deceased 3 month Libor rate.  Term SOFR - CME Group The coupon would then reset every 3 months. 

Dividends: Paid quarterly, qualified and non-cumulative. 

New Average cost per share: $22.53 (15 shares)

Current Yield at AC = 7.21%

Next Dividend: 9/28/23

For the floating rate to result in a higher coupon than the current 6.5% fixed rate, the 3 month SOFR rate would need to be higher than 2.18% (6.5% - 4.06% spread = 2.44% - .26161% Tenor = 2.18%, rounded up). 

At a 5% SOFR, below where it is now, the coupon would be 9.32% which would produce an annualized yield of 10.32% for that 3 month period. At some point with a high SOFR rate, the issuer's incentive may be to just call the preferred stock at par value. 

The current price indicates an opinion that the SOFR rate will be significantly lower than now when the transition occurs in July 2025 and possibly to a heightened concern about bank holding company preferred stocks in general based on the Silicon Valley Bank and First Republic bank failures. Although those banks did not issue preferred stocks, their bank holding company owners did and those stocks went to zero pretty fast after the FDIC seized the operating banks.  

7. Exchange Traded First Mortgage Baby Bonds - $25 Par Values: 

Cost: $431.4

I will own the FM baby bonds in multiple account, limiting my total exposure to 300 shares per bond. 

Investment Category: Exchange Traded Baby Bonds, part of the broader Exchange Traded Bonds category that includes Trust Certificates; Trust Preferred (in effect junior bonds); synthetic floaters where the underlying security is a bond; certain European Hybrids (very strange in that they were classified as bonds on the balance sheet but equity capital for regulatory purposes); and "principal protected" senior notes, all of which are "baby bonds" but I discuss them as part of different categories given their unique characteristics. Only a few Trust Preferred and Trust Certificates are still outstanding. 

European hybrids are mostly sold now in the bond market. 7 Questions To Understand Corporate Hybrid Bonds, EMEA Hybrid Issuance Constrained by High Interest Rates All of the exchange traded $25 par value issues that I owned in the past, issued by either AEG or ING, have been called at par value. Aegon Hybrids; ING Hybrids 

A. Bought 5 EMP at $21.6 - Fidelity Taxable Account: 

Quote: Entergy Mississippi LLC 4.9% First Mortgage Bonds Overview

Issuer: Wholly owned by the utility holding company Entergy Corp. (ETR)

Operating results for Entergy Mississippi are separately listed in ETR's quarterly reports.  ETR 10-Q for the Q/E 6/30/23 (pages 133 - 146)

Last Discussed: Stocks, Bonds & Politics: Item # 2.(8/12/23 Post) 

Average cost per share this account: $22.29 (45 shares)

Yield at AC this account: 5.5% (.049% x. $25 par value = $1.225 annual interest per share ÷ $22.29 Total Cost per share = 5.5%)

Prospectus

Credit Ratings: A/A2

Security: First Mortgage on substantially all assets. 

Par Value: $25

Interest Paid Quarterly

Next Ex Interest Date: 9/28/23

Trades Flat (whoever owns the security on the ex interest date receives the entire quarterly interest payment)

Issuer Optional Redemption: At par value + accrued and unpaid interest. Call protection expired in 2021. 

Maturity: Unless redeemed early at the issuer's option, the bond matures on 10/1/2066. 

Rationale: Purchases of first mortgage bonds baby bonds issued by utilities, with maturities extending well beyond my expected lifespan, are in part a very small play on the possibility that long term interest rates will plummet again. 

B. Bought 5 EMP at $21.58 - Vanguard Taxable Account: 

See Item # 7.A. above.

Average cost per share this account: $23.43 (40 shares)

Yield at AC this account: 5.23%  

C. Added 5 EAI at $21.75; 5 at $21.35 - Schwab Account:  

Quote: Entergy Arkansas 1st Mortgage Bonds 4.875% due 2066 (EAI)

Entergy Arkansas is another operating subsidiary of the utility holding company Entergy Corp. (ETR). Its operating results can be found in ETR financial reports. ETR 10-Q for the Q/E 6/30/23 (pages 107 - 112)

Prospectus

Par Value: $25

Maturity: 9/1/66 unless redeemed earlier at issuer's option 

Optional Call: At par value + accrued and unpaid interest. Call protection expired in  2021. 

Security: First Mortgage on substantially all assets

Credit Rating: A/A2

Trades Flat

Interest payments made quarterly. 

Next Ex Interest Date: 8/30/23

New Average cost per share this account: $22.04 (40 shares)

Yield at New AC this account: 5.53%

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.