Easy Income Portfolio: February 2025 Update

Once again this month Easy Income Portfolio proved its value as a safe haven during turbulent times. In spite of political and economic turmoil, our portfolio delivered a steady stem of consistent income and positive performance.

12 of 15 positions were higher during the month, and the average yield is 9.1%.

It was a very busy month indeed for the economy and markets.

Over the past month, the United States has witnessed a flurry of political and economic developments under President Donald Trump's administration, creating ripple effects across domestic and international markets. Policy shifts, trade tensions, and macroeconomic trends are setting the stage for a volatile but potentially opportunistic investment landscape. As always, when political and economic forces collide, sharp investors must separate the noise from the substance.

We had a temporary halt on the disbursement of various federal financial assistance programs. The freeze specifically targeted foreign aid, non-governmental organizations, diversity, equity, and inclusion (DEI) initiatives, and environmental projects tied to the Green New Deal. Essential programs, including Medicare and Social Security, were spared, but the impact of this abrupt action sent shockwaves through government agencies and non-profits dependent on federal support. As expected, the political backlash was immediate. Legal challenges mounted quickly, with federal judges blocking the freeze, citing potential constitutional violations. While the administration has signaled its intention to fight these rulings, the battle over federal spending is just getting started. Investors should watch how this plays out, as it could shape the fiscal policies of the next four years and impact sectors reliant on government contracts.

In a move reminiscent of his first term, President Trump announced steep tariffs on imports from Canada, Mexico, and China in late January. The new tariff schedule includes a 25% tax on most goods from Canada and Mexico, excluding crude oil and energy products, which will be taxed at 10%. A 10% tariff was also imposed on imports from China. These measures, set to take effect on February 4, have already provoked retaliatory action.

China has slapped new tariffs on American exports, including a 15% tax on coal and liquefied natural gas LNG, as well as a 10% tariff on crude oil, agricultural machinery, and large-engine vehicles. This escalation could weigh on sectors like industrials, agriculture, and energy, though it may also create buying opportunities for investors looking for undervalued plays in these industries.

The labor market added 143,000 jobs in January 2025, slightly below expectations. The unemployment rate ticked down to 4%, while average hourly wages rose 0.5% month-over-month and 4.1% year-over-year. Healthcare, retail, and government jobs led the way, while the mining sector saw declines.

However, economists are voicing concerns that Trump's policies—including tariffs and stricter immigration enforcement—may hinder future job growth and fuel inflation. Wage gains remain solid, which is good for consumers but presents challenges for businesses managing labor costs.

Inflation crept higher in January, with the Consumer Price Index (CPI) rising to 3%, up from December's 2.9%. Food and energy prices remain key contributors to rising costs. The increase has tempered market expectations for Federal Reserve rate cuts in 2025, though much will depend on how inflation trends over the coming months.

Tariffs, particularly those affecting steel, aluminum, and consumer goods, could push inflation even higher. Investors should monitor whether the Fed maintains its current 4.25%–4.50% interest rate target or adjusts its stance to combat inflationary pressures.

President Trump has placed an emphasis on reducing government spending and cutting the federal workforce. To spearhead this effort, he appointed Elon Musk to head the newly created “Department of Government Efficiency,” tasked with slashing $1 trillion from the budget. However, critics argue that the administration's push for additional tax cuts could exacerbate the national debt, which currently stands at $28.9 trillion (100% of GDP). Projections suggest debt levels could rise to 107% of GDP by 2027.

While reducing wasteful spending is a positive move, balancing this with tax cuts is a tricky equation. Investors should keep an eye on how these fiscal policies affect bond markets and interest rates.

In early January, Brent crude prices topped $80 per barrel due to tighter sanctions on Russian and Iranian oil exports and a severe cold snap in North America. However, by late January, prices pulled back, with Brent settling at $78.50 and WTI at $74.66. The shift came as the administration ramped up domestic production and pressured OPEC to keep prices in check.

The U.S. Energy Information Administration (EIA) has now revised its 2025 production forecast to 13.59 million barrels per day, highlighting expectations for increased domestic output. On the other hand, OPEC's output has declined for the second consecutive month, driven by lower Nigerian and Iranian exports.

U.S. natural gas prices have been swinging on fluctuating weather forecasts. An early January cold snap drove up demand and prices, but as temperatures moderated, prices softened. The EIA expects rising demand for LNG exports to keep prices elevated in 2025 and 2026, particularly as Europe and Asia seek alternatives to Russian gas.

January saw significant Treasury market volatility, with the 10-year yield peaking at 4.79% before closing the month at 4.54%. The uptick in inflation drove a sell-off in government debt, as investors recalibrated expectations for Fed policy.

Several  of our positions include loans to small to mid-sized businesses here in the United States,

The Van Eck BDC Income ETFBIZD and Blackstone Senior Loan ETF SRLN are both comprised of entities that lend to this market.

Several companies in the Wisdom Tree Alternative Income Fund HYIN lend to this market.

A resurgence in small and midsize businesses (SMBs) could be a significant catalyst for business development companies (BDCs). Several factors support this:

• Reshoring and Manufacturing Growth: Supply chain disruptions have accelerated the shift back to domestic production, boosting demand for SMB financing.
  
• Technology Leveling the Playing Field: AI, automation, and digital tools are helping SMBs compete against larger firms.
  
• Private Credit Filling the Gap: BDCs are emerging as vital alternative lenders with banks tightening lending standards.

If SMBs thrive, BDCs benefit from increased loan originations, more substantial credit quality, and M&A-driven liquidity events. Floating-rate loans remain a staple of BDC portfolios, making them attractive yield plays in the current environment.

Both Angel Oak Financial Strategies Income FINS and Arrow Mark Financial AROW should benefit from the positive economic impact this small business renaissance will have on the banking industry.

The day to the noise of the markets can make you crazy. If your primary goal is to collect income from your portfolio, or you prefer a more sedate approach to investing using reinvested income and dividends, the Easy Income Alternatives offers a low-stress alternative worth considering to help meet your long-term objectives.

It can also help preserve your sanity during times of economic, market, and political turbulence