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Steven Bavaria  

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  • 'Income Growth' Vs. 'Dividend Growth' - The Re-Match [View article]
    NV_GARY -
    Just let me say how difficult it was, back in February, to restrain myself from following up your comment with one of my own complimenting you and suggesting that you deserved a standing (or sitting, as the case may be) "ovation" for keeping us linguistically on track.

    But since it's April 1st, what the heck........
    Apr 1, 2015. 04:28 PM | Likes Like |Link to Comment
  • Cash Flow Vs. GAAP: The Battle Goes On At Eagle Point Credit And Oxford Lane Capital [View article]
    Chris -
    Yes, interesting dynamic. What we are rooting for is that the tightening in real credit spreads continues, in anticipation of an eventual rate increase, but that the rate increase itself is slow and drawn out so as to slow the pain of the LIBOR spread squeeze you describe, while real credit spreads begin to offset it.

    As I said earlier, I believe the management of both funds are well aware of this and have included it in their modeling of projected earnings, cash flow and dividend policy.
    Mar 30, 2015. 10:30 AM | Likes Like |Link to Comment
  • Cash Flow Vs. GAAP: The Battle Goes On At Eagle Point Credit And Oxford Lane Capital [View article]
    Tack -
    Correct. The fund's only leverage is via its preferred stock. All the floating rate debt - the 9 or 10 to 1 leverage - is in the CLOs, whose equity OXLC owns. (OXLC also owns some junior CLO debt as well. But most of its holdings are CLO equity.)

    The point is, you won't find the floating rate debt (i.e the leverage) on the fund's (i.e. OXLC's) balance sheet, but on the balance sheets of the CLOs it holds.
    Mar 30, 2015. 10:25 AM | Likes Like |Link to Comment
  • MORL April Dividend Brings Yield To 23.2% [View article]
    Lance -
    I found your thoughts about the political reasons Janet Yellen would continue to BE patient, even if the word "patient" has been excised from the Fed statement, to be very interesting and insightful. When you combine that with the globalization of labor markets, which has removed much of the bargaining power of most workers in developed countries, it makes it even less likely that wage-driven inflation is going to be a worry in the near to medium-term future.
    Mar 27, 2015. 10:51 AM | 1 Like Like |Link to Comment
  • Why Fears Of Inflation And High Interest Rates Still Don't Worry Me [View article]
    Phenom -
    Thanks. There are some "white-knuckles" aspects to all investment strategies, including mine. As a retiree living on my investment results, I think I personally worry less when markets are volatile if I'm getting a generous dividend stream than I would if I were only getting a portion of the dividend stream and were waiting/hoping for "the market" to give me the rest over time in capital appreciation (or for the companies to slowly grow their dividends.) But to be fair to all the commenters, there is plenty to worry about with any of the different strategies.
    Mar 19, 2015. 12:08 PM | Likes Like |Link to Comment
  • Why Fears Of Inflation And High Interest Rates Still Don't Worry Me [View article]
    Thanks, Doc, and Vinyl too.

    I think I know where Vinyl's coming from, although I don't share all his concerns or believe that every high yielding investment necessarily carries undue risks. There are lots of well diversified closed end funds that hold very traditional investments - blue chip stocks, senior secured floating rate corporate loans (the safest area of the corporate balance sheet to be investing), preferred stocks, convertible bonds, even high yield bonds - that fit very nicely in a retiree's or anyone else's portfolio. But because they are in a closed end fund structure with managers who don't have to worry about liquidity and redemptions, and with sometimes a very modest bit of leverage (because CEFs are limited by law to very modest leverage), that gives them a yield boost of 2-3 percentage points over a typical open end mutual fund.

    I believe Vinyl and other investors who follow his approach may be trading off 2,3, 4% or so in yield to achieve short-term liquidity or short-term price stability that many long-term investors don't really need. But if it helps them sleep better at night because their investments are in a more liquid, less volatile, or less complex form, then that is the right choice for them. If we are all saving and investing for a "comfortable" retirement, then "comfort" needs to be appreciated in its many dimensions: financial, emotional, spiritual........
    Mar 18, 2015. 09:59 AM | 5 Likes Like |Link to Comment
  • Why Fears Of Inflation And High Interest Rates Still Don't Worry Me [View article]
    Hey Phenom -
    I don't think so. If my portfolio of high yielders currently yields about 9 or 10% (with no capital growth expected), and I withdrew 4-5% of that to live on and re-invested (compounded) the other 4-5% at yields of 9-10%, I would be replicating the strategy of a typical "dividend growth investing" portfolio that yielded 4-5% (which the investor withdrew and spent) but then had internal dividend growth (i.e. of the individual stocks) of 4-5%. In the latter case, the individual machines in the investment factory are growing their output per machine at 4-5% per annum. In the first case (my approach), the output per machine is fixed, but we re-invest part (or all) of that output into buying more machines. In either case the output of the factory as a whole grows at the same rate.

    Besides my own articles on this subject - "income growth" through compounding, vs. "dividend growth" through organic growth of individual stocks - which you've perhaps seen ( - you may wish to check out articles by other writers like Stanford Chemist and Chowder who have written about this.
    Mar 17, 2015. 02:29 PM | 5 Likes Like |Link to Comment
  • Why Fears Of Inflation And High Interest Rates Still Don't Worry Me [View article]
    vinyl1 -
    Yes, and your re-investment yield will have doubled. That's basically what happened in 2008, and a lot of investors - those of us who didn't panic and jump ship - made a bundle.
    Mar 17, 2015. 01:33 PM | 1 Like Like |Link to Comment
  • Cash Flow Vs. GAAP: The Battle Goes On At Eagle Point Credit And Oxford Lane Capital [View article]
    Tack -
    You are right. But that's true of any investment, except an open-end mutual fund that guarantees to redeem shares periodically (usually daily) at par. There is never any assurance that a company's stock (or that of a closed end fund) will sell for its theoretical book value. All you are ever buying is a continuous stream of future dividends (assuming the company pays dividends), and whatever the market from time to time chooses to value that at.
    Mar 17, 2015. 12:05 PM | Likes Like |Link to Comment
  • Cash Flow Vs. GAAP: The Battle Goes On At Eagle Point Credit And Oxford Lane Capital [View article]
    You're confusing the 2% average rate that CLOs pay for their liabilities (most of which are triple-A rated senior debt that is priced at about 150 basis points above 3-month LIBOR, i.e. less than 2%) with the preferred stock that OXLC uses to leverage itself (slightly, since closed end funds are limited by law to leverage of 0.5 to 1).

    Re the drop in NAV, I suggest you re-read the piece and previous ones, the main point of which is the difference between GAAP income and taxable income (cash flow) from CLOs. GAAP is what affects NAV value (i.e. paper gains and losses, which are not terribly relevant to CLO investors), while cash flow is what affects CLOs' capacity to pay distributions to their owners. That's why the "total fair value of investments" you mentioned may hardly budge, despite the mark to market changes that affect the NAV. (This info is also included in that link you referenced.)
    Mar 17, 2015. 09:47 AM | Likes Like |Link to Comment
  • Cash Flow Vs. GAAP: The Battle Goes On At Eagle Point Credit And Oxford Lane Capital [View article]
    OXLC's preferred shares are obviously senior to and safer than the common equity, which is why they pay 7 or 8% versus 15% on the common.

    My "basic position" is that the leveraged loan market is nothing to be afraid of, with corporate loans - senior, secured, floating rate - that are much safer than high yield bonds (unsecured, often subordinated, with credit costs more than twice those of leveraged loans) and have proven themselves over and over again through decades of economic ups and downs. (Investors who would feel comfortable buying the equity of a broad distribution of, say, middle market companies should feel no compunction about buying the senior secured debt of that same cohort of companies.)

    The CLOs themselves may seem at first a bit like black boxes, but CLOs have also proven themselves to be a dependable investment vehicle for over two decades, weathering the great recession, etc. The closed end funds that hold CLOs - OXLC and ECC - are hardly black boxes, given the fairly detailed reports they put out periodically about themselves, showing credit statistics, yield to maturity of their various CLO holdings, the cash flow(taxable) returns on their portfolios vs. the GAAP returns, etc.

    It takes some work getting up the curve to understand what a CLO actually is (a virtual bank), what buying the equity of a CLO really means, and plowing through their financial reports, but for investors who make the effort, the information made available is really pretty informative. One's dependence on the quality of the portfolio manager is a key factor, but no more or less so than one's dependence on management when one buys any sort of financial investment company (BDC, banks, finance companies, mortgage REITs).

    I think it is worth the effort for retail investors to get up the learning curve, since CLOs were a very attractive investment vehicle that for years was only available to hedge funds and other large institutional investors. At a time when the Fed has made leverage so cheap, and it will continue to be cheap even after the Fed raises rates (in June, or the Fall, or next year, take your pick) by the 25 or 50 basis points commentators are projecting, it behooves individual investors to find a way to take advantage of that.
    Mar 12, 2015. 08:54 AM | 2 Likes Like |Link to Comment
  • Why Retirees Should Not Be Afraid To Have Treasuries In Their Portfolio [View article]
    George -
    Having bought treasuries back in the 1980s when rates were high, I agree with you. They were a great buy then and will be again when (or if) rates return to more normal levels. But to buy them now and lock-in a return on a retirement portfolio (or any other portfolio) of 2% or so is a loser's game, even if rates never rise.

    Fortunately, I expect to be part of what you call that "subset of retirees who have saved enough to live off interest [or dividends] only", but living off yields of 5 or 6% (widely available to investors in dividend-paying stocks, closed end funds, ETFs, etc.) and living off yields of 2% (which is what you'd lock in with Treasuries today) would be two very different experiences. I recommend the former.
    Mar 10, 2015. 09:48 AM | 2 Likes Like |Link to Comment
  • What The Numbers Say About Long-Term Investments In Leveraged ETFs [View article]
    I've noticed from comments to my articles over the years that there is a huge fear of, or aversion to, "leverage" in general, among a certain group of investors and commenters.

    In fact, the Fed's suppression of interest rates, whether you think it's a good idea or not, has been a huge gift to institutions like banks and other leveraged entities, including structured leveraged investments like CLOs, leveraged ETFs, etc. Even minimally leveraged investments, like closed end funds, which are prohibited by law from leveraging more than 1/2 to 1, provide their investors with an opportunity to benefit from these artificially low interest rates. So for retail investors not to seek out opportunities to take advantage of this over recent years has been to leave free money on the table.

    Now the great fear of rising rates, and debate over when the Fed will tighten, has been over-hyped as well. The big debate - tightening in June, or the fall, or not until 2016 - is all about what most commentators agree is probably a 1/4 to 1/2% increase. Even after that, leverage will still make sense for funds and other vehicles that will be borrowing at 2% then (as opposed to 1.5% now) and reinvesting the proceeds at 4, 5, 6% and more.

    So I am not defending any particular leveraged ETF or fund (although my readers know I'm a huge fan of CEFs, leveraged and otherwise), but I don't think there is reason to regard leverage in general as especially scary to long-term income oriented investors.
    Mar 10, 2015. 09:28 AM | 5 Likes Like |Link to Comment
  • Cash Flow Vs. GAAP: The Battle Goes On At Eagle Point Credit And Oxford Lane Capital [View article]
    That's the point of the article. You have some investors who own the stock for the yield but don't really understand it. Every time the NAV drops, they get scared and dump the stock. Other investors, who are coming to realize that it is taxable income (cash flow) rather than GAAP that really matters to funds like ECC and OXLC and is the source of their distributions, ignore the NAV as somewhat meaningless. Since it doesn't take much trading volume to move a thinly traded closed end fund's price, this results in a lot of random movement in both directions as groups of buyers and sellers from both camps see the same quarterly reports but some see bad news (negative GAAP, lower NAV) while others see good news (stronger cash flow, increased dividend support).
    Mar 4, 2015. 05:03 PM | 1 Like Like |Link to Comment
  • Eagle Point Credit Company Updates Holdings [View article]
    Madpup -
    It's been 12% or so since the beginning, but as a new fund it wasn't reported very accurately at first. CEFConnect has it right now, even though Seeking Alpha still does not. Here's the company's own press announcement about its latest distribution.
    Mar 4, 2015. 03:52 PM | Likes Like |Link to Comment