BBDC, DIR.UN:CA, EMP, FCVSX, FSPHX, GLQ, JPC, MRCC, PEO, QYLD, SRLN, WU

Economy: 

ADP® Employment Report for November +103,000 private jobs with the consensus at 120,000.   

November Jobs Report - BLS: Employment Situation Summary - 2023 M11 Results

Unemployment Rate: 3.7%, down from 3.9%

Jobs Added: 199,000 with consensus at 190,000. The job addition benefited from the settlement of the SAG and UAW strikes. 

Wage Growth: Up .4% or 12 cents per hour. Up 4% annually through November.  

Average work week: Up .1 to 33.8 hours 

The .1 increase in hours and the .4% increase in wages are meaningful numbers when applied to the number of people in the workforce.

Total Nonfarm private payroll employees: 129,191,000. Total Nonfarm Private Payroll Employment 

If the work week held steady at 33.8 hours, the $.12 per hour increase would generate an additional $210.91 per year or $523,998,696 for the private payroll workforce.

U-6: 7%, down from 7.2% in October. Table A-15. Alternative measures of labor underutilization - 2023 M11 Results

The economy is not yet showing signs of a developing recession. 

Services PMI® at 52.7% in November 2023 Up from 51.8 in October. The new orders component was unchanged at 55.5%

US Home Price Growth Continues Slow but Steady Increase in October, CoreLogic Reports Up 4.7% year-over-year. CoreLogic offers a free valuation of my home's value, which it periodically updates based on nearby sales activity. The service is called eproperty. The current CoreLogic valuation is slightly higher than the one provided by Zillow.  

China Evergrande May Finally Meet Its End in Hong Kong Court - The New York Times This major property developer defaulted in early December 2021 and has been in limbo since then, unable to pay over $300B in overdue bills. China is far more likely to sweep this kind of problem under the rug than deal with it.  

Moody's cut China's credit outlook to negative on rising debt risks Moody's retained the long term rating at A1. I would not rate China's debt higher than BBB-. 

China is IMO likely to face a "Lehman Moment" within 5 years and may be unable to deal with it based on how it has handled bad debt problems to date. The past tendency has been to allow problems to fester and grow (zombie companies, ghost towns, etc.). GDP growth has been driven in significant part by spending vast sums on projects that made no economic sense. The Chinese government has also made imprudent loans to countries that are unable to service the loans and have no prospect of paying the principal amount back and are having problems paying all of the interest. China Is Lending Billions to Countries in Financial Trouble - The New York Times; What This $100B Ghost City Reveals About China’s Property Crisis | WSJ - YouTube; See Inside a Ghost Town of Abandoned Mansions in China | Architectural Digest; China's 'Lehman moment?' Zhongrong Trust misses payments to investors | CNN Business

China Inflation Rate (down .2% Y-O-Y in October)

Fed seen by market as winning inflation battle in long run - MarketWatch (subscription publication, published 12/7/23) This article is referring to the 10 year breakeven inflation rate approaching 2%, something that I have been discussing in every recent post. 

As of 12/8/23

Ten Year Treasury Yield: 4.23%

Ten Year TIP Real Yield 2.02%

Ten Year Breakeven Inflation Rate: 2.21%

I view those numbers as both normal and consistent with one another. 

Money Stock M1 and M2: Federal Reserve Board - Money Stock Measures - H.6 - November 28, 2023

There were a myriad of causes for problematic inflation that were unrelated to any action or inaction of the Biden administration. Two of those major causes resulted from the FED creating excessive money supply and maintaining ZIRP and QE even after annual CPI had risen to over 8%. In large part, the problematic inflation was a FED created monster.  

The non-seasonally adjusted M2 was at $15.5 trillion in January 2020 and had increased to $21.856+T by March 2022, a 41% increase in a little over 2 years. As M2 started to decline thereafter, so did inflation. Inflation will continue to come down with the shrinking money supply, says former Fed Gov. Heller - YouTube; Inflation has Federal Reserve critics pointing to money supply surge - The Washington Post; M2 Money Supply Growth vs. Inflation - Updated Chart | Longtermtrends; The Fed Is Ignoring the Money Supply and Letting Inflation Rip - Barrons (January 2022)

The non-seasonally adjusted number for M2 as of October 2023 was $20.671+T, down from the high of $21.756+T in March 2022. 

Other causes, which are gone now, include supply chain disruptions created by the pandemic.  

A republican will just blame Biden. If Trump had won in 2024 the republicans would blame the democrats in Congress.  The reason for blaming Biden is simple. He was President when it happened, a conclusion reached without any analysis of the myriad actual causes that would have occurred irrespective of who was President. 

+++

Allocation Shifts Discussed in this Post: 

Treasury Bills Purchased at Auction: +$10,000 in principal amount

I will be buying $10,000 at next Monday's 3 month T Bill auction, redeploying proceeds from maturing bills received after the last auction. 

Corporate Bonds: +$4,000 in principal amount

Purchased Treasury MM Fund (SNOXX): +$2,000

7 day SEC yield at 5.06%. 

SNOXX is viewed as a short term alternative (1 day to 3 years) to keeping excess cash in the Schwab sweep account that pays only .45%. 

Individual U.S. Common Stocks: +$275.5 (yield at 10.82%)

Canadian Common Stock: +C$1,288 total cost (yield at 5.43%)

Stock Mutual Fund: +$150

Stock CEFs (GLQ/PEO): +$186.9

Stock ETF (QYLD)=  +$85.05 (yield at 11.98%, using the last 12 monthly dividends) 

Inflow Common Stocks/Stock Funds: +$1,552.4 (valuing Canadian stock at US$940)

Exchange Traded First Mortgage Bond (EMP) = +$110.9 (Yield at 5.52%)

Leveraged Preferred Stock CEF (JPC): +$194.7  (yield at 8.32%)

Senior Loan ETF (SRLN): 7.49%  (using trailing 1 year dividends)

2023 Net Outflow Stocks/Stock Funds: = -$27,791.14 

++++

Putin and His Orwellian Empire of Economic Stagnation, Misery, Violence, and Drug and Alcohol Addiction: 

U.S., Ukraine counteroffensive plans marred by miscalculations, disagreement - The Washington Post (a detailed analysis that is sobering) 

All of the congressionally authorized U.S. aid funds will soon be spent. The House republicans have so far refused to even allow a vote on another appropriation unless their demands on immigration issues are met. Ukraine’s US lifeline is hanging by a thinning thread; White House says funding for Ukraine is running out in stark warning to Congress 

The Senate Republicans refused to pass a bill containing aid for Ukraine and Israel since the Democrats were not giving them everything they wanted on immigration.  Ukraine and Israel funding bill fails at critical moment for war - YouTube

A ‘tyranny of the minority’ is destroying American democracy, a new book warns 

It is now normal for the Republicans to link policy changes that could not otherwise be passed through democratic processes to their willingness to keep the government open or to increase the debt limit. Basically, the threat is that the republicans will blow up the government or destroy the U.S. full faith and credit unless the Democrats give them what they want. 

The linkage now is to the Ukraine and Israel aid legislation which is something new for republicans. I do not approve of these linkages and view them as a form of legislative terrorism. The democrats have developed a natural reluctance to reward this kind of republican legislative terrorism that started with the Clinton Presidency. It does not happen when there is a republican President. 

Ukraine aid in growing jeopardy as Republicans double down on their demands for border security

I do agree that something must be done on the border but not by making gifts to Hamas and Putin. 

{Discussion on Immigration: The Ukraine/Israel aid package did include an additional $14B for border security, an amount higher than discussed by the politicians this summer. The Biden administration has already implemented another republican demand that those captured crossing the border will have to show a "credible fear of persecution" before being granted asylum. And Biden has already implemented limits on asylum requests for those who pass through a third nation. Biden administration to limit asylum to migrants who pass through a 3rd nation The republicans want far more. The least costly and most effective option for illegal immigration, which would be anathema to the Democrats, would be a simple law change that abolishes the right to apply for asylum at the border. Those claims would no longer be processed and anyone making such a claim at the border would be denied entry. Widespread publicity of the law change would take place throughout Central and South America. That would solve a lot of illegal immigration. But to secure that change from the Democrats, and only a few would go along even with a major concession, the republicans would have to make concessions on immigration that they are unwilling to make that would be required to secure enough Democrat votes for the law change, such as a road to citizenship for most children who were brought illegally into the U.S. by their parents. The Democrats could also offer more funds for a wall where it makes sense, primarily along the California border with Mexico. Republican are unwilling to make any concessions on immigration policies necessary to reach a compromise. It is just too politically advantageous for them to make demands that the democrats will not accept and then to bash them in the next election.}  

Poll: U.S. public's support for Ukraine begins to wane; American Views on the Ukraine War in 6 Charts  

Why China Wants Trump to Win - The Atlantic I am not sure whether Xi would prefer Trump over Biden. Putin definitely would. 

'Cracks are already there' in Putin's 'cannon fodder' army | Brig. Gen. Peter Zwack - YouTube

The Violent Homecoming of Russian Convicts Freed to Fight in Ukraine - WSJ The violent convicts are not going to be transformed into good, law abiding citizens after  fighting in Ukraine. When Putin releases them back into the general population, their propensity to commit even more violent crimes will be much higher than before their incarceration. The WSJ estimates that 30,000 Russian convicts survived the fighting in Ukraine and have already been released by Putin back into the civilian population. Putin TV will not disclose the atrocities committed by those returning convicts, but information is available to those willing to review court records and interview family members of the victims. 

DOJ charges four Russian soldiers with war crimes related to Ukraine invasion The Russians tortured an American civilian who was not involved in the war. 

Two Assassinations of Ukrainian Traitors (One in Luhansk and One Outside Moscow) - YouTube

++++

Don the Authoritarian and His Party: 

RealClearPolitics - Election 2024 - 2024 Republican Presidential Nomination

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

Demagogue Don: “Biden and his radical left allies like to pose as defenders of democracy. But Joe Biden is not the defender of American democracy. Joe Biden is the destroyer of American democracy. … This campaign is a righteous crusade to liberate our republic from Biden and the criminals and the Biden administration."  Trump Comments 12/2/23 

A Trump Dictatorship is Becoming Increasingly Likely-The Washington Post

The Danger Ahead - The Atlantic (column written by David Frum, a former speechwriter for President George W. Bush, about Don the Authoritarian)

Speaker Johnson says he believes he has the votes for a Biden impeachment inquiry 

Trump’s brazen use of pardon power reaping political benefits as he runs for election - Washington Post A large number of people receiving Trump pardons are helping him win re-election, suggesting that the pardons were not granted using traditional criteria for Presidential pardons, but on benefits Trump expected to personally receive from those pardoned. Louis Kupers, who led the DOJ office in reviewing clemency requests, called the pardons "so transactional, in that it was furthering his own interests." Before delving into this issue, it was already clear that Trump was granting pardons based on non-traditional criteria and was bypassing the DOJ office that evaluated pardon requests.  

Trump Will Abandon NATO - The Atlantic Anne Applebaum starts this column with a Trump quote: "I don't give a shit about NATO", which is music to Putin's ears.  

Trump is showing how a second term would rewrite the rules of presidential power 

Why a Second Trump Presidency May Be More Radical Than His First - The New York Times This article starts out with comments made by Trump praising the Chinese government's use of force to quash the pro-democracy demonstration in Tiananmen Square: "When the students poured into Tiananmen Square, the Chinese government almost blew it. Then they were vicious, they were horrible, but they put it down with strength. That shows you the power of strength. Our country is right now perceived as weak." 

Liz Cheney's "dire" warning against reelecting Trump - YouTube

Trump spins economic fairy tale; counts on voters with short memories - YouTube Donald claims, for example, that he brought gasoline prices down to $1.87. That is  a deliberately misleading claim. Gasoline prices did decline to that level in March 2020, but Trump had nothing to do with it. The statement is false in that respect. Prices fell because demand cratered in the early stages of the pandemic and that caused prices to drop.  Trump's daily false and misleading statements do not work on those who are informed. Trump’s false or misleading claims total 30,573 over 4 years - The Washington Post The ignorant are easily manipulated by him. 

Appeals court upholds most of Trump gag order in DC case-Roll Call; United States Court of Appeals Decision on Trump Gag Order.pdf The comments that concerned the Appellate panel made by the juvenile former President of the U.S. are summarized at pages 31 - 35. I have excerpted how this summary starts: 

Trump Voters Are America Too - The Atlantic "If Trump wins in 2024, his detractors will have to reckon once again with the voters who got us here—to reconcile what it means to share a country with so many citizens who keep watching Trump spiral deeper into his moral void and still conclude, "Yes, that’s our guy."

Nevada grand jury indicts 'fake electors' who backed Trump in 2020 The GOP's State Party Chair, Michael McDonald, was among those who were indicted. 

UNLV gunman was a career professor whose online profile focused on conspiracy theories The conspiracy theories involved prominent Jews like George Soros, the “Powerful Organizations Bent on Global Domination!”, and unfounded claims about the Council on Foreign Policy and the Trilateral Commission. I did not see any reference to Jewish space lasers as the cause for wildfires.  

A surge in violent threats against US public officials is disrupting American democracy 

Florida GOP chair won’t step down as new details of sexual assault allegation emerge 

Eligible voters are being swept up in conservative activists' efforts to purge voter rolls - CBS News  

Jim Jordan will not listen. Just read the exchange between Jordan and DOJ official that is quoted in this article. Jim Jordan smacked down by DOJ official after blaming Trump-era investigation on Biden - Raw Story Being a full time jerk would be tiring for most people, but Jordan thrives on being one nonstop.   

House Speaker Johnson (R-LA) wants to blur January 6 footage to protect Capitol rioters 

+++

1. Bought Back 100 DIR.UN:CA at C$12.87 (C$1 IB Commission) : 

Quote: Dream Industrial Real Estate Investment Trust (DIR-UN.TO) 

Website:  Dream Industrial REIT ("owns, manages and operates a portfolio of 322 industrial assets totalling approximately 70.6 million square feet of gross leasable space in key markets across Canada, Europe and the U.S.".  

The weighted average units outstanding during the  2023 third quarter was 283.237M and the long term debt outstanding was $2.522+B.  Q3-2023-DIR-Report.pdf (pages 31 and 48). 

This REIT had 209 properties as of 9/30/19 and claimed a net asset value per share of $11.09. The long term debt was then at C$821.753M and the weighted average diluted units outstanding was at 139.873M. Dream-Industrial_Q3 2019.pdf (pages 31, 34)

Management: By DREAM Unlimited Corp. (Toronto) 

Investment Categories: Equity REIT Common and Preferred Stock Basket Strategy and Canadian Dollar Strategy

2022-DIR-Annual-Report.pdf

Dividend: Monthly at C$.05833 per share (C$.70 annually)  

Yield at C$12.88 TC = 5.43%

With interest rates declining, I am more willing to accept the 5.43% dividend yield. 

Since the dividend has not been raised since 2012, it is highly unlikely that this Canadian REIT will increase the dividend. In the past, a more than satisfactory, to me, total return has come from profitably trading the stock after harvesting the monthly dividend.  

Last Ex Dividend: 11/29/23

Last Elimination: Item # 1 - Eliminated DIR.UN:CA - Sold 200 at C$13.815 (1/30/23 Post)(profit snapshot +C$653)  In that post I also discussed a trade in the CAD priced units that netted a C$686 profit but a tax reportable loss in USDs of $6.88, providing snapshots of the purchases. For a U.S. citizen and for tax reporting purposes, profits and losses are not measured and reported in a tax return using a foreign currency. The profit or loss is measured by converting the CAD cost into USDs when the security is bought and then again when it is sold. The decline in CAD/USD exchange rate during my period of ownership explains how the trade generated a C$643 profit but a USD loss. This occurs when there is a decline in CAD/USD exchange rate between the date of purchase and the date when sold. 

Last Earnings Report (Q/E 9/30/23): 

Q3-2023-DIR-Report.pdf and Dream Industrial REIT Reports Strong Q3 2023 Financial Results 

I will be discussing this in more detail than usual since the accounting is so different from U.S. REIT accounting using GAAP. Canada and other countries use the International Financial Reporting Standards. IFRS vs. GAAP: What's the Difference? For Canadian REITs, the main difference is that depreciation is not deducted in the "net income" calculation when the REIT elects to use adjustments to fair value, a mushy number that lacks the certainty of a depreciation expense calculation.  

All amounts are in Canadian Dollars: 

"Net Income" and "Comprehensive income" Calculations: 

FFO per unit at $.25, up from $.22 in the 2022 third quarter

FFO $69.383M, up from $60.897  

Net Income before items: $50.494M or $.178275 per share.  

FFO per share was at $.19 in the 2019 third quarter.

Revenues: $109.4M, up from $93.313M

Revenues minus property operating expenses: $84.504M, up from $71.977M

Other expenses: $24.759M, up from $15.852, driven up primarily by a $9.178M increase in interest costs.  

Rental Revenues minus expenses: $59.745M

If I just focus on that $59.745M number, and ignore all of the other adjustment discussed below or that are set out in the following snapshot below, the per unit number is $.211 ($59.745M ÷ 283.237M units), compared to the $.25 per unit FFO that is calculated in the snapshot below. For dividend coverage, I am more comfortable using $.211 than $.25. 

Note that the net income number is adjusted  lower by $18.428M, which nets the fair value adjustment to investment properties with fair value adjustments for financial instruments. Those adjustments have nothing to do with cash flow which would be reflected in a U.S. REITs net income to FFO and AFFO calculations  (AFFO for a U.S. REIT, when properly calculated to exclude non-cash straight line rent  revenues and by subtracting maintenance and certain other cash expenditures, is the best reflection of cash flow available to support the dividend)

In the FFO calculation, those fair value adjustments are reversed. So the $33.522M negative adjustment in the net income allocation is added back in the FFO calculation and the $15.095M positive adjustment is subtracted from net income.  

Net Income to FFO: This is substantially different from how U.S. REITs reconcile net income to FFO: 

In this reconciliation, depreciation is not deducted from net income which would be the case using U.S. GAAP accounting. Only certain non-property assets are depreciated and the noncash expense is negligible. 

Remembering that I have zero training in accounting, and even less of lay person's familiarity with IFRS accounting than GAAP, I believe that depreciation is not deducted from net income since Dream Industrial does not deduct property depreciation in the net income calculation. Since depreciation is not included as an expense in the net income, this noncash expense is not added back to net income in the FFO calculation. 

It is my understanding that depreciation can be used but so can an alternate approach which would not be permitted using U.S. GAAP when the values are not certain. A certain value would be marking a publicly traded security to fair value.   

Instead of using depreciation, which is a precise number, the Canadian REITs can add or delete to net income fair value adjustments to investment properties, which is an inherently mushy number, and fair value adjustments to financing instruments. As shown in the preceding snapshot, those adjustments significantly add to FFO, but have nothing to do with cash flow.  

Occupancy in-place and committed at end of quarter: 97.2%

Net asset value per share: $16.8, down from $17.05

Debt: SU Debt is rated BBB by DBRS

CCRIS  = Cross-currency interest rate swap Generally a CCRIS is a longer term derivative contract that transforms debt in one currency into another. In this case, it involves replacing higher cost Canadian debt with lower interest cost Euro-equivalent debt. (page 36) 

I am anticipating modest increases in interest costs as the 2024-25 debt matures. 

Development Update: 

P. 4

Other Sell Discussions: Item # 3.A. Sold 100 DIR.UN:CA at $11.92 (4/27/19 Post)(profit snapshot = C$219); Item # 3.B. Sold 300 DIR.UN:CA at C$9.48 (4/2/2018 Post)(profit snapshot = +C$389) 

Realized Gains to Date: C$1,947

2. Small Ball Buys: 

A. Added to GLQ - Bought 5 at $5.88; 10 at $5.82: 

Quote: Clough Global Equity Fund Overview-A Leveraged Long-Short Balanced CEF

Cost: $87.6 

Leveraged: Yes at close to 39% with interest at a .9% spread to the Overnight Banking Fund Rate. 

GLQ SEC Filings

SEC Filing - Holdings as of  7/31/23

SEC Filed Semiannual Report for the period ending 4/20/23 (GLQ holdings list starts at page 17

Sponsor's website: Clough Global - Home

Clough Global Equity (GLQ) Portfolio | Morningstar (unrated, links top 25 holdings) 

Purchase Restriction: Each purchase must lower my average cost per share. 

Average cost per share: $6.82  (101+ shares)

Dividend: Monthly at $.0599 per share ($.7188 annually), ROC supported.

GLQ Dividend History | Seeking Alpha

The only way to support this dividend after expenses is through net realized capital gains. For the fiscal year ending 10/31/23, CLQ paid $26.322+M in dividends. Of that amount, $13.72+M was sourced from long term capital gains and the remainder was ROC. 

I am reinvesting the dividend for as long as the discount to net asset value per share remains over 10%. 

Yield at New AC:  10.54%

Next Ex Dividend: 12/21/23

Sponsor's Website: Clough Global - Home

Data Date of 12/1/23 Purchase: 

Closing Net Asset value per share: $7.02

Closing Market Price: $5.88

Discount: -16.24%

Average 3 Year Discount:  -7.35%

Data Date of 12/4/23 Purchase: 

Closing Net Asset Value: $6.97

Closing Market Price: $5.83

Discount: -16.43

Sourced: GLQ - CEF Connect 

B. Bought 30 JPC at $6.49: 

Quote Nuveen Preferred & Income Opportunities Fund Overview - Leveraged CEF 

Cost: $194.7

Leverage at 39.13%, leverage cost at 6.26% as of October. 

Sponsor's website: JPC-Nuveen

Two other Nuveen CEFs (JPC and JPT) recently merged into JPC. Nuveen Preferred & Income Closed-End Funds Announce Completion of Mergers (11/6/2023)

Portfolio Allocations: As of 7/31/23

Credit Quality as of 10/31/23: 

Uses highest credit ranking if rated by more than 1. 

JPC SEC Filings 

SEC Filed Annual Report for the period ending 7/31/23 (list of JPC holdings starts at page 31)

Investment Strategy: Monthly Income Generation 

Dividend: Monthly at a variable rate

Last 12 Dividends: $.5405 per share

Yield at $6.49 Using $.54 annual rate: 8.32%

Next Ex Dividend: 12/14/23

Data Date of 12/4/23 Trade: 

Closing Net Asset Value per share: $7.52

Closing Market Price: $6.48

Discount: -13.83%

Average 3 year discount: -5.9%

Sourced:  JPC  - CEF Connect 

Starting with the FED's abandonment of ZIRP and QE, this CEF has suffered the Quadruple Whammy: (1) the rise in funding costs decreased, or eliminated with some holdings, the spread between the cost of borrowed funds used to purchase those assets and the yields of owned assets bought with borrowed money; (2) the rise in interest rates negatively impacted the value of preferred stocks; (3) the negative effect from a decline in assets values has been magnified by using borrowed funds to buy securities declining in price; and (4) related to the foregoing, the discount to net asset value per share has widened well above the 3 year average.  

The question is whether all or most of those negative impacts on the share price are mostly in the rear view mirror. That question, as with other matters that involve future predictions, can not be answered with any certainty but only guesses. 

Preferred stock prices have improved since September as intermediate term interest rates declined. Financing costs may come down late next year when and if the FED starts to lower the FF rate.   

Last Elimination: Item # 4 Sold 200 JPC at $8.87 (5/9/2011 Post) That was just a dividend clip with a small profit on the shares.  

C. Added to WU - Bought 10 at $11.71: 

Quote: Western Union Co. (WU)

Cost: $117.1

WU Analyst Estimates | MarketWatch

WU SEC Filings

Last Discussed: Item  #7.C. Bought 10 WU at $12.7; 5 at $12.37; 5 at $12.05; 5 at $11.82; 5 at $11.67; 5 at $11.25 (3/11/2023 Post) Those were my first ever purchases. 

New Average cost per share: $11.85 (50+ shares)

Dividend: Quarterly at $.235 per share ($.94 annually)

The Western Union Company -- Dividend History

I will be reinvesting the dividend when the likely reinvestment price is below $13.  

Yield at New AC = 7.93%

Last Ex Dividend: 9/14/23 (owned 35 as of)

Last Earnings Report (Q/E 9/30/23): The Stock Jocks reacted negatively to this report which was released on 10/25/23 after the close. The stock closed at $12.93 on 11/25 with volume at 5.835M shares. The stock closed at $11.67 the next day, down $1.26 or 9.74%, with volume accelerating to 13.53M shares. 

I did not see any good reason for this reaction based on WU beating revenue and E.P.S. estimates, raising its outlook slightly, a 7+% dividend yield and a TTM P/E near 6.  

SEC Filed Earnings Press Release and 10-Q (as noted at page 13, the company sold its Business Solutions business for $910M in cash; borrowings discussed at page 30; WU owns municipal and corporate bonds, see pages21-22, of which $535.9M mature in 1 year from 9/30/23)

Revenues up 1% to $1.1B

GAAP E.P.S. at $.46 

Non-GAAP E.P.S. at $.43, up 2% Y-O-Y. The lower non-GAAP number is due to a 3 cent per share reversal of "significant uncertain tax provisions".   

Non-GAAP Consensus E.P.S. per Schwab: $.39 

Guidance: GAAP E.P.S. between $1.67 to $1.74; Non-GAAP E.P.S. between $1.65 to $1.75

The Western Union Company Q3 2023 Earnings Call Transcript - Insider Monkey

Analyst Reports (available to Schwab customers): 

Morningstar (12/4/23): 5 stars with a fair value estimate of $17 with a narrow moat. 

S&P (10/27/23): 3 stars with a 12 month PT of $12, lowered by $1 after the third quarter earnings report which made no sense to me given that the analyst acknowledged the E.P.S. and revenue beats and raised the 2024 E.P.S. estimate by 4 cents. 

Western Union is facing more competition from digital transfer platforms which is a major concern. It has developed its own digital platform in response. Branded digital represented 21% of consumer-to-consumer revenues for the third quarter. 10-Q at page 41 

D. Added to QYLD  - Bought 5 at $17.01 ( Fidelity Account): 

Quote: Global X NASDAQ-100 Covered Call ETF Overview

Investment Category: Monthly Income Generation

Cost: $85.05

Sponsor's Website: Nasdaq 100 Covered Call ETF

Global X NASDAQ 100 Covered Call ETF (QYLD)-Morningstar (currently rated 3 stars) 

Last Buy Discussions: Item # 1.C. Added to QYLD - Bought 5 at $17.55 (7/8/23 Post) Item # 2.I. Added to QYLD - Bought 5 at  $17.8 (6/17/23 Post)

New Average cost per share this account: $18.08 (40 shares)

Dividend: Paid monthly at a variable rate

I am not reinvesting the dividend in this account. I have a position in my Schwab account where I am reinvesting the dividend. 

Last 12 Dividends per share: $2.038

Yield at AC Using $2.038: 11.27%

Next Ex Dividend: 12/28/23

Goal: As with other high dividend funds, the goal is any total return before any ROC adjustments to the tax cost basis plus the dividends. For this ETF, a positive total return on the shares may require the elimination of the position after a rally that results in a net profit of $1 or more. 

E. Added to SRLN - Bought 2 at $41.5: 

Quote SPDR Blackstone Senior Loan ETF Overview 

Cost: $83

Sponsor's Website: SPDR® Blackstone Senior Loan ETF

Expense Ratio: .7% 

This is an actively managed ETF that attempts to outperform its benchmark: 

Number of Holdings: 469 as of 12/4/23

Assets: $4.896+B

For loans that have credit ratings, almost all will be rated in junk territory (see sponsor's webpage)  

Investment Category: Monthly Income Generation 

Average cost per share: $43.54 (12+ shares)

Dividend: Monthly at a variable rate. Since the fund owns loans that pay spreads over a short term rate, the dividend has been rising since March 2022. This trend will go into reverse when the FED starts to lower the FF rate.   

TTM Annual Dividend per share = $3.11

My best guess is the next 12 months will have a lower annual rate. 

(no dividend paid in January 2023): 

Yield at AC Using $3.11: 7.14%

Last Ex Dividend: 12/1/23

F. Added to BBDC - Bought 10 at $8.67 on Ex Dividend Day (Vanguard Account): 

Quote:  Barings BDC Inc. (BBDC) - Externally Managed BDC

Cost: $86.7

I discuss buying a BBDC SU bond in Item # 5.B. below.  

SEC Filings

2022 Annual Report (Risk factor summary starts at page 36 and ends at page 70) 

10-Q for the Q/E 9/30/23

New Average Cost per share: $8.582 (120 shares)

Last Reported Net Asset Value per share (9/30/23): $11.25

Dividend: Quarterly at $.26 per share ($1.04 annually)

Dividend History-BBDC

I am not reinvesting the dividend in this account. 

Yield at New AC = 12.12%

Last Ex Dividend: 12/5/23 (owned 110 as of)

Largest purchase this account: Item # 3.A. Added 40 BBDC at $7,75 (7/15/23 Post)

Highest cost purchase this account: 20 shares at $10.34 (3/8/22)

Lowest cost purchase this account: 5 shares at $7.21 (5/10/23)

Last Discussed: Item # 1.A. Added to BBDC - Bought (11/25/23 Post) I discussed the last earnings report in that post and have nothing further to add here. SEC Filed Press Release 

Goal: As with any BDC purchase, the goal is any total return, prior to ROC adjustments to the tax cost basis, that exceeds the dividend payments. 

G. Added to MRCC - Bought 10 at $7.17 - Schwab Account: 

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

Cost: $71.7

MRCC SEC Filings

MRCC 2022 Annual Report (Risk summary starts at page 35 and ends at page 67)

Buy Discussions: Item # 1.K. Added to MRCC - Bought 5 at $7.05  (10/21/23 Post); Item # 1.C. Added to MRCC - Bought 5 at $7.3 (8/26/23 Post); Item # 1.C. Added 5 MRCC at $7.30 (8/26/23 Post); Item # 2.  Started MRCC - Bought 20 at $7.73 (6/10/23 Post)

Net Asset value per share history: 

9/30/23: $9.58

3/31/23:   $10.29

12/31/22:  $10.39

12/31/21:  $11.51 

12/31/20   $11

12/31/19:  $12.2 

12/31/18:  $12.66

12/31/17:  $13.77

12/31/16:  $14.52

12/31/15:  $14.19

12/31/14:  $14.05

12/31/13:  $13.92

Public Offering Price: $15 per share, proceeds to MRCC at $14.72, Monroe Capital Corporation The external manager paid $.59 per share of the underwriter's discount. 

This kind of decline raises an issue whether the managers are competent. 

The decline in 2020 is understandable but assets have been incinerated when the economy is humming along fine. 

At a minimum, this net asset value per history requires IMO a more cautious approach than normal for BDCs, where more than normal caution is warranted given their inherent risks. 

I will also use a hair trigger approach to selling when and if the share price rises above my highest cost lot or possibly when I can profitably sell the entire position even though some shares are sold for a loss. 

I classify MRCC as a deservedly hated BDC. 

New average cost per share: $7.37 (50 shares)

Net Asset value per share as of 9/30/23: $9.58

Dividend: Quarterly at $.25 per share

Monroe Capital (MRCC) Dividend History 

I am not reinvesting the dividend. 

The dividend was cut from $.35 effective for the 2020 second quarter payment.  

Yield at New AC = 13.57%

Arguably the yield is adequate for the risk. 

Next Ex Dividend Date: 12/14/23

Last Earnings Report (Q/E 9/30/23): 

SEC Filed Earnings Press Release 

10-Q for the Q/E 9/30/23 (Summary of investments starts at page 8)

Net Asset value per share = $9.58

NII per share: $.25, equal to the quarterly dividend. 

Monroe Capital Corporation (NASDAQ:MRCC) Q3 2023 Earnings Call Transcript - Insider Monkey As explained therein, NII would have been $.29 per share but for a reversal of $1M in previously accrued fee income associated with IT Global Holdings. The principal amount of the loan had been paid off in 2022 but a fee could have been paid under a "future liquidity event" which I interpret to mean a sale. The company went into Chapter 11 before a sale happened that "would have" resulted in a monetization of the fee. There is still a $512,000 accrued fee which has not yet been reversed. 

The adjusted NII per share for the 2023 first quarter was at $.32 and $.31 unadjusted. SEC Filing 

Adjusted NII per share for the second quarter was at $.28 and $.27 unadjusted. SEC Filing 

I am ignoring the unadjusted number since the amount being added back are income/excise taxes. 

As of 9/30/23, the MRCC portfolio consisted of "approximately 80.3% senior secured loans, 2.6% unitranche secured loans, 5.3% junior secured loans and 11.8% equity securities", p. 69 10-Q. 

Management Assessments of Credit Quality: 

Page 73, 10-Q

As of 9/30/23, 4 borrowers were on non-accrual status: Arcstor Midco, LLC, Education Corporation of America, Forman Mills, Inc. and NECB Collections. Those investments, based on fair value rather than on amortized cost, had a value of $6.2M as of 9/30/23, or 1.2% of the total investments priced at fair value.  

The two loans to Arcstor Midco have an amortized cost of $4.632M and had been written down to $2.574M. Most of the interest is PIK, standing for Payment-in-Kind, or what I call pretend interest. The interest is not paid but added to the principal amount owed:

Page 14, 10-Q  

Forman Mills and Education Corporation:

Page 14, 10-Q

The loan to Education Corporation has an amortized cost of $831,000 with a "fair value", while on nonaccrual, of 2.905M. Education Corporation of America Hit With $28M Settlement; For-Profit College Operators Will Pay $28 Million After Students Were Locked Out | Republic Report The company filed for bankruptcy. Education Corporation of America The loan was acquired on 9/3/2015. Education Corporation of America | Monroe Capital LLC I can not explain the valuation. If the valuation is valid, it has something to do with whatever is left after Education Corporation of America settled the claims by students. 

An investment of $1.458M in NECB Collections has been written down to zero (page 18). A loan to NECB had an amortized cost of $1.312M and had been written down to $424K. (page 17)

Out of curiosity, I spent about 30 minutes trying to figure out the valuation place on the Education Corporation loan and was unable to answer the question with anything other than a guess. 

Looking at the 2020 10-K, I discovered that NECB was a subsidiary of Education Management.  

In the 2019 second quarter, MRCC participated in a "credit bid" to acquire the assets of NECB in exchange for reducing its loan to Education by $1.458M. 

As a result MRCC acquired a 20.8% equity interest in NECB. 2020 Annual Report at page F-40, footnote 6 That is the equity investment that has now been written down to a zero value. 

In that report, there is listed a $833 loan, acquired on 9/3/2015, that was given a value of $762. The rate was Libor +11%, with about 1/2 in PIK. (p. F-11).  There was also a preferred stock investment that had an amortised cost of $7.492M which is no longer referenced in the last 10-Q. A preferred stock investment would almost invariably be rendered worthless in a BK.  

Weighted average yields of investments: 

Page 71, 10-Q

Maximum Position: 100 shares

Purchase Restriction: Each subsequent purchase must lower my average cost per share.  

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

While I have a very negative opinion about the external manager, my gut informed me that the current price may be low enough that I have a shot at achieving the goal with some patience.  

H. Added 5 PEO at $19.86: 

Quote: Adams Natural Resources Fund Inc. Overview (PEO) - Stock CEF

Cost: $99.3

Energy stocks have declined over the past few weeks in response to lower crude oil prices. 

Sponsor's website: Adams Funds

PEO SEC Filings

SEC Filed 2023 Third Quarter Report (lists holdings as of 9/30/23)

Last Discussed: Item # 1.C. Restarted PEO - Bought 5 at $20.65 (11/25/23 Post) 

Average cost per share: $20.26 (10 shares) 

Dividend: Variable, with most of the amount paid in the 4th quarter that includes capital gains realized during the year. 

$.10 per share is paid in the first three quarter. 

Yield: It is not possible to calculate a dividend yield since the total annual amount is dependent on the capital gains realized during each year. The average annual dividend over the past 5 years, using the data in the previous snapshot, was $1.144 per share. However, 2020-2021 were especially bad years for this sector. 

Last Ex Dividend: 11/17/23 at $1.05 per share

PEO Stock Dividend History & Date

Data Date of 12/7/23 Trade: 

Closing Net Asset Value per share: $23.8

Closing Market Price: $19.82

Average 3 Year Discount: -14.54%

Sourced: PEO - CEF Connect

Last Elimination: Item # 1. Eliminated PEO - Sold 182+ at $22 (1/16/23 Post)(profit snapshot = $853.25)

3. Treasury Bill Purchases - All in Schwab Account: 

A. Bought 3 Treasury Bills at the 12/6/23 Auction: 

119 Day Bill

Matures on 4/9/24

Interest = $51.96 (difference between $1,000 par per bond and the amount paid) 

Investment Rate: 5.421%

B. Bought 5 Treasury Bills at the 12/7/23 Auction: 

Matures on 2/6/24

56 Day Bill

Interest: $41.03

Investment Rate: 5.407%

C. Bought 2 Treasury Bills at the 12/4/23 Auction: 

Matures on 3/7/24

91 Day Bill

Interest: $26.54

Investment Rate: 5.409%

4. Corporate Bond Purchases: 

I discuss buying BDC senior unsecured bonds below. 

Since a BDC, as a pass-through entity, pays out almost all of its net income to common shareholders, these companies are inherently more risky than a company that has far lower dividend payouts. Credit risk is also derived from the risky loans made by BDCs and their leverage.  

A. Bought 2 Blackstone Private Credit 4.7% SU Maturing on 3/24/25 at a Total Cost of 97.66:

Issuer: Externally managed BDC that is not publicly traded. 

Prior to buying this risky bond, I read the Moody's credit report 

Since this fund sells debt to the public, it has to file reports and prospectuses with the SEC. SEC Filings 

Quarterly Report for the Q/E 9/30/23 (total investment income = $1.4569+B, page 7)

This bond was originally sold in a private placement. A Prospectus was later filed with the SEC that allowed this bond and others to publicly trade. This is accomplished by exchanging the privately sold bonds for new CUSIP registered bonds that have identical terms. 

Blackstone manages the publicly traded Blackstone Secured Lending Fund (BXSL). I recently discussed starting a position with a 5 share buy. Item # 2.A. Started BXSL-Bought 5 at $27.8 (11/18/23 Post) 

BXSL and the Blackstone Private Credit Fund have the same credit ratings. 

The private fund is much larger with $48.8B in assets as of 10/31/23:

New Finra Page: Bond Page | FINRA.org

This is an actively traded bond. 

Credit Ratings: Baa3/BBB- 

YTM at Total Cost: 6.596%

Current Yield at TC = 4.81%

B. Bought 2 Barings BDC 3.3% SU Maturing on 11/23/26 at a Total Cost of 90.1: 

Issuer: Barings BDC Inc. (BBDC) - Externally managed BDC. 

I discussed Barings in Item # 2.F. above and in prior posts. 

New Finra Page: Bond Page | FINRA.org

Credit Rating: Baa3

YTM at Total Cost: 7.066%

As with other BDC SU debt, this YTM is not consistent with the Baa3 credit rating and indicates that there is more credit risk than the average Baa3 rated bond. 3.406% of the YTM is in the profit when and if the principal amount is paid off at maturity.

Current Yield at TC = 3.66%

4. Exchange Traded First Mortgage Bond: 

A. Added 5 EMP at $22.18 - Schwab Account: 

Quote: Entergy Mississippi LLC 4.9% First Mortgage Bonds Overview

It is common for operating subsidiaries of utility holding companies to borrow using first mortgage bonds. Almost all of those are $1,000 par value bonds that trade in the bond market. I own several. 

A few first mortgage bonds issued by operating subsidiaries of Entergy still trade in the stock market. EMP is one of those. I own this security in 3 taxable accounts and 2 Roth IRA accounts. The largest position is 50 shares in my Fidelity taxable account with an AC per share of $22.28. 

My maximum exposure in taxable accounts is 300 shares, with 130 owned now. I will lose interest rapidly when the price goes over $23.   

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

ETR 10-Q for the Q/E 9/30/23 (Entergy Mississippi results can be found at pages 143-158)

Investment Category: Exchange Traded Baby Bond

Last Discussed: Item # 5.A. Added 5 EMP at $20.5 in Schwab Account (10/21/23 Post) 

New Average cost per share this account: $21.75 (40 shares)

Yield at New AC: 5.63%

Next Ex Interest Date: 12/28/23

Prospectus

Par Value: $25

Coupon: 4.9% paid on the $25 par value 

First Mortgage lien on substantially all assets

Trades Flat (whoever owns the security on the ex interest date receives the entire quarterly interest payment, just like a common or preferred stock in that regard) 

Maturity: 10/1/2066, unless called earlier at the issuer's option. 

Issuer optional Call: Call protection expired in 2021. Issuer may call at par value + accrued and unpaid interest. 

I am not concerned about the credit risk. 

Given the potentially long maturity, there is a lot of interest rate risk. The recent decline in long term rates has reduced that risk some in the short term, but it remains for as long as the issuer does not exercise its early redemption right. 

Some Other Buy Discussions:  Item #7.A. Bought 5 EMP at $21.6 in Fidelity Account and Item #7.B. Added to EMP in Vanguard Account (8/26/23 Post); Item # 2.E. Added to EMP in Schwab Account - Bought 5 at $20.92  (1/3/23 Post); Item # 5.A. Added 5 EMP in Vanguard Taxable Account at $21.75 (12/6/22 Post); Item # 2.B. Bought 10 EMP at $23.76; 5 at $21.07; 10 at $20.39 (4/25/2020 Post) 

Sell Discussions: Item # 5.A. Pared EMP-Sold 5 at $26.84  (6/27/20 Post); Item # 4.A. Eliminated EMP-Sold 70 at $24.87 (5/1/19 Post)(profit snapshot = $207.92); Item # 2.B. Sold 30 EMP at $24.44  (2/13/19 Post); Item # 2.A. Sold 50 EMP at $24.47 (7/22/17 Post)(profit snapshot = $66.98)

EMP Trading Profits to Date: $464.9

5. Mutual Funds: 

These are adds to funds that have significantly underperformed the S&P 500 this year.  

A. Added $100 to FSPHX at $26.87:  

Quote: Fidelity Select Health Care Portfolio Overview

Sponsor's website: Fidelity Investments

Dividend History: 

FSPHX – Morningstar (currently rated 4 stars)

FSPHX–Performance-Morningstar This sector ETF has performed poorly YTD and over the last 1, 3 and 5 years compared to the S&P 500. However, the annual average 15 year total return was 15.58% through 12/7/23.

FSPHX – Portfolio - Morningstar (lists top 25 holdings) I do not comprehend the appeal of Agilon Health (AGL) as a top 10 holding. 

YTD through 12/7/23: -2.72%

3 Year Annual Average Total Return: -1.26%

B. Added $50 to FCVSX at $31.63: 

Quote: FCVSX | Fidelity Convertible Securities Fund Overview 

Sponsor's website: FCVSX

Dividend History: 

FCVSX -Morningstar (currently rated 5 stars)

FCVSX – Performance -Morningstar (through 12/7/23)

YTD +7.6% (total return)

3 Year Annual Average Total Return: +1.37%

15 Year Annual Average Total Return: +12.96% 

An ETF alternative is SPDR Bloomberg Convertible Securities ETF (CWB) which I have owned in the past but do not currently have a position. CWB - Morningstar

C. Reinvestment of $167.13 PRPFX Annual Dividend:

Reinvestment Price: $49.28 

Quote: PRPFX | Permanent Portfolio Overview

Sponsor's website: The Permanent Portfolio Family of Funds

SEC Filings

SEC Filed Semiannual Report for the period ending 7/31/23 

Investor_Guide (9/30/23).pdf

Allocations as of 7/31/23: 

The allocations will not change much over time. 

The "Dollar Asset" allocations consists of investment grade corporate bonds and treasuries. More than 1/2 of the teasuries listed in the portfolio as of 7/1/23 have already matured and proceeds would have been reinvested into new purchases since the allocation remains relatively constant over time.  

The "Swiss Franc" assets consists of Swiss Franc deposits and Swiss government bonds. The gold and silver assets are in bullion. 

This reinvestment raised my average cost slightly to $40.96 (237+ shares). 

Last Discussed: Item # 1.I. Added $100 to PRPFX at $47.98 (4/15/23. Post) 

Realized Gains to Date: $899.1 (snapshots in Item # 3.J)

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.