To The Moon

Are you ready for US market to sprint to the finish line, on a high this Fri, 29 Dec 2023?

Hopefully, last Fri, 22 Dec 2023 core Personal Consumption Expenditure (PCE) report for November 2023 has provided enough ammunition to last through the last 4 trading days of 2023. (see below)

Inflation nears the Fed's target

On Friday, inflation data showed the Fed taking an important step on returning inflation to its 2% target.

The Core Personal Consumption Expenditures Price Index, rose 3.2% over last year in November.

This has been, the slowest annual increase since April 2021.

If the data is sliced even more finely, it reveals that the Fed has more or less reached its goal.

Meaning, on a 6-month annualized basis, core PCE actually came in at 1.9% in November 2023.

This data likely clears the path for the Fed to cut interest rates next year.

I think it is “safe” to round out 2023 with a broad consensus that (a) inflation will ease, (b) economy will continue to grow, and (c) the Fed will cut interest rates.

In other words, the "soft landing" has become a reality and the basis to power US markets higher.

US market did end on a high note on Boxing Day.

• DJIA: +0.43% (+159.36 to 37,545.33).

• S&P 500: +0.42% (+20.12 to 4,774.75).

• Nasdaq: +0.54% (+81.60 to 15,074.57). Crossed the 15,000 level.

With most stocks already on a roll, are there anymore bargains to be had?

If you take a moment to recollect, you will realize that the answer has been in front of us all this while.

CME Fedwatch tool.

With inflation cooling as planned, the market has already started “forecast” when the Fed will begin to cut the Fed fund rates.

For March 2024, the probability of interest being cut by -0.25% stands at 75.6%.

If this holds “true”, I believe REITS will stand to benefit progressively from a regular, declining interest rate.

Forbes seems to think so too. (see below)

Real estate may be the income investing play for 2024, with real estate investment trusts (REITs) dishing dividends from 8.7% all the way up to 15.4%.

Why REITs?

REITs avoid taxes at the corporate level.

In exchange, they need to pony up at least 90% of their taxable income and redistribute it to investors as dividends.

Average REIT yields is somewhere around 2x to 3x the market.

However, the recommendation from Forbes post, pays 12.1%; that is roughly 8x the S&P 500! (see below)

For the past 1½ to 2 years, the Fed’s hawkish rate policy has been working against REITs.

Finally, it looks primed to take its boot off of real estate’s collective neck.

REITs trade like bonds. When rates rise, REITs drop. This explains why REITs are so far down over the past two years. Rising rates have hurt REIT prices.

Now, the tide is turning, and it is time for rates to “reverse skate”.

Forbes recommendation.

$Ready Capital Corp(RC)$ - 13.6% yield.

• RC is a mortgage real estate investment trusts (mREITs).

• This mREIT originates, acquires, finances and services small- & medium-sized balance commercial loans.

• Approximiately 50% of its core earnings are derived from bridge loans.

• Remaining 50% of earnings are derived from a combination of construction loans, fixed-rate CMBSs, Freddie Mac loans, small business lending and residential mortgage banking.

• It is also “good” to learn that it is a bigger company than it was a year ago.

• In May 2023, RC announced the completion of a merger with $Broadmark Realty Capital Inc(BRMK)$ — a specialty real estate finance company that originated and serviced residential and commercial construction loans.

Why Ready Capital Corp?

Below are recent development of this mREITs.

• Strong Financials: RC boasts consistently strong profitability and healthy dividend payouts, with a current yield of 13.6%.

• Portfolio Composition: RC primarily invests in senior-tranche agency MBS, considered relatively safe with implicit government backing.

• Investor Concerns: With interest set to fall in 2024 by an aggregate -0.75%, the profitability for RC just got “brighter”.

Dividend payout.

• Ready Capital’s dividend is hardly pristine. However, it has been stable across the mREIT’s publicly traded life.

• One bummer is the dividend will be reduced from $0.40 (in 2023) to $0.30 (in 2024).

• It is expected to be temporary, due to absorbing Broadmark’s tighter-margin portfolio.

• The brighter note of course is when the merger starts to yield fruit, the payout should rise again.

• This is an appealing prospect for a mREIT that is already yielding nearly 14%.

What is mREITs?

• Mortgage real estate investment trusts (mREITs), hold “paper”—typically securitized mortgages and other loans, rather than holding physical real estate.

• It represents some of the “fattest” dividends an investor ever find. However, one has to be particularly choosy in this space.

• Ready Capital Corp YTD’s performance is -3.36%.

• It peaked on 2 Feb 2023 at $13.48.

• Do you think US market will end this Fri, 29 Dec 2023 on a record high?

• Do you think REITs or mREITs are a long term investment tool in 2024?

Please give a “LIKe” and “Re-post” ok. Thanks. Rating is very important (to me).

Do consider “Follow me” and get firsthand read of my daily new post/s ok. Thanks.

@Daily_Discussion

@TigerPM

@TigerStars

@Tiger_SG

@TigerEvents