Heading into the Long Weekend Markets Remain Quiet

Seems everyone has headed out for the long holiday weekend in the U.S. as markets are pretty darned quiet—even looking at our largest account at Fido it shows daily gain of $2.42–that’s pretty quiet.

Earlier this week we let go of 2 utility issues – the Spire 5.90% preferred (NYSE:SR-A) and the NextEra Energy 5.65% baby bond (NYSE:NEE-N). Of course as happens too often the Spire issue has spiked up 60 cents since I sold the issue and is now over $28.

Our only purchase the last couple of weeks was the Ready Capital 6.50% baby bond (NYSE:RBP).

So, like most folks, we have too much cash–way too much cash–maybe 35-40%. With our accounts up almost 10% since January we aren’t feeling very motivated to move up the risk ladder—but we will be forced to do it. If the Kayne Anderson 3.50% term preferred (NYSE:KYN-F) would swoon like it did a few weeks ago (down just under $25) we would add further to our 1000 share position just to lock up some safe yield while waiting.

Next week my goal is to find at least 2 buying opportunities–1 of which might have to be a dividend capture candidate, which has worked so successfully this year. After capturing dividends successfully many times earlier in the year I have not done anything in that arena for a month–I just haven’t taken the time to scout out the best candidates.

Hope everyone has a good weekend and prepares for what is not doubt going to be an eventful fall season.

Mid Day Ramble – Not Much Income Action

We are watching the stock market “party on” for no real reason except we have no real new news on China. With a bit of time on our hands I thought I would share a couple “canary in the coal mine” companies I like to watch.

2 companies that are more local (Minnesota)–and thus maybe of heightened interest for me are Best Buy (NYSE:BBY) and the Mesabi Royalty Trust (NASDAQ:MSB). Of course MSB isn’t a company, but is a royalty trust, which owns a bunch of land in northern Minnesota which holds iron ore. Best Buy, as everyone knows, is kind of the last man standing (or is it woman standing?) in the consumer electronics business.

I like to watch the financials of these 2 because they kind of represent 2 different segments of the economy–1 is consumer focused, the other dependent on the manufacturing segment. I don’t claim to have any special knowledge of these 2, but I have watched them for years and years.

The financials of these firms can give us a clue on the health of various economy segments. For instance sales at Best Buy can drop like a rock if the consumer is under stress–i.e. unemployed etc. The MSB units can flucuate wildly based on investor thoughts on the future (the next year or two).

Best Buy released earnings today which were pretty good–importantly total sales and comparable store sales were up a bit. Instantly I know that the consumer isn’t feeling much stress–for now. You can be certain that unnecessary large screen TVs and home theater systems are some of the 1st things to leave ones “wish list” when there is fear in the air. Chinese tariffs have not bit hard yet, but the company is cautious about the future with new tariffs scheduled to kick in soon.

Mesabi released royalty payments received from Cleveland-Cliffs (the miner and buyer of the iron ore) (NASDAQ:CLF) on 8/2/19 for the quarter ending 6/30/2019 and they were fairly solid at almost $12 million which translates into around 90 cents/unit.

So what is this telling me? Best Buy tells me things are “ok” as far as the consumer is concerned–and this is most important for forecasting any recession (at least to me) in the next couple of quarters. Mesabi financials tell me the industrial segment is doing well–BUT Mesabi investors tell me CAUTION. MSB has traded as high as $32 in the last year, but is currently at $22.68–investors are no longer willing to “pay up” for the high yield (10-15% depending on distributions declared). Investors are forecasting weakness ahead.

With this data it would seem unlikely that we will see much real economic weakness in the next quarter or two. Of course this can change quickly, but I wanted to share my thoughts on these 2 “canaries”.

Debt Cost Too High? Go to Europe

I have been watching some of the debt that is being sold in Europe by some top rated U.S. companies and one that just happened that really stands out is the E1.8 billion (Euro) issue which just closed from real estate giant Prologis (NYSE:PLD). Prologis is a global giant, so they borrow in markets that provide the best advantage to the company.

The company sold 3 series of notes with those due in 2027 pricing at 1/4%, the 2031 notes were 5/8% and those way out in 2049 were 1.50%. To add insult to injury the interest is paid annually.

The bonds were rated A3 by Moodys and A- by S&P.

The pricing document is here.

Gabelli Go Anywhere Trust “Put Option” Notice Received

There has been some talk on the site of how the “put option” works on a couple of the Gabelli CEF issues work.

We own a position in the Gabelli Go Anywhere Fund (GGO-A) which has ‘put’ options in 2019 and 2021.

The company put out the notice to investors last week–we received the notice electronically first and then yesterday we received a snail mail version.

This issue has a floor coupon of 5%–which is where it is now, based on a $40 liquidation value. The issue is trading at $41.49 today (we use this term loosely as there is damned little volume)–so a current yield around 4.8%.

The ‘put’ is can be exercised from now until 9/24/2019 at $40 plus accrued dividends. 1 has to call their broker (in this case Fido) to exercise the ‘put’.

In this case we will not exercise our ‘put’ which would lock in a loss of more than $1/share on our holdings. We then have 2 years to either dispose of the shares or exercise the option that comes around in 2021. Most likely we will dispose of the shares prior to the next put as shares will move down towards $40 as the next put date comes closer, but we have plenty of time to see what happens prior to this time.

After the second ‘put’ date arrives the issue converts to a perpetual preferred stock.

New Chat Links

On the right hand side of the page under “additional links” are a couple new links for chatting about common stock and 1 for chatting about REITs. kaptain lou mentioned this might be helpful and would help filet out some of the various topics.

I can add bunches of these if that would be helpful. If you let me know in comments if you have additional topics that would be helpful I can add them.

All in All a Quiet Day

Just reviewing winners and losers in the income issue market today there is nothing at all standing out.

Interest rates are barely moving while stocks have moved a bit higher (200 Dow points or so). Honestly everyone needs to focus on economic data to be able to make rational decisions. Tonight we are going to look closer at the data–in general data has been mixed, but we do note that the last consumer confidence number was off quite a bit–the consumer is the driver for this economy.

The other items we will likely do is unload some of our sock drawer utility issues. The intent was to hold these issues for a very long time, but when the Spire (SR-A) 5.90% issue is at $27.39, the Nextera 5.65% baby bond (NEE-N) is at $27.75 and the National Rural Utilities 5.50% baby bond (NRUC) is at $27.58% one has to consider a sale–EVEN if there is no place to go with the proceeds. The NRUC issue has a current yield of 4.99%–yikes–can I do a little better? Likely not with the high quality but money market is still in at 2.09% (Gabelli US Treasury Money Market–GABXX), but trending lower so a person has a month or two to try to deploy funds.

Monday Morning Kickoff

Last night I thought I would need to title this blurp as “Monday Morning Beatdown”, but we have seen a 500 point swing in the DJIA overnight so “all is good”.

Last week common stocks traded in a wide range with the SP500 trading at a low of 2834 to a high of 2939 before closing the week near the low at 2847. The 10 year treasury moved in a range of 1.50% to 1.62% and closed the week at 1.53%. The 10 year treasury closed at 1.54% the week before so all in all there was virtually no change over the week.

The average $25 preferred stock/baby bond moved 1 penny lower last week–us income investors have to be damned happy about that lack of movement. There are now 147 issues trading at $25 or below (out of 664 issues) which is 5 issues fewer than the week before.

The Fed balance sheet, which is now supposed to be in a neutral position, dropped by $12 billion last week. This seems like a pretty big runoff for being in a neutral stance (on the balance sheet). It will be interesting to see the weeks ahead. Given the low interest rates now would be a good time to let the runoff continue, but they have stated the runoff is over–guess we will have to watch and see.

Last week we saw just 1 new income issues announced.

JMP Group (NASDAQ:JMP) announced that they would be issuing a new $25 baby bond. No pricing has yet been announced for the issue. I suspect the unsettled markets have lent a bit of uncertainty to pricing–I would think we would see something in the next day or 2.

How About That Downdraft!

I watched the downdraft in common stocks today and wondered to myself when the traders would run shares back higher—I waited all day and it didn’t happen–oh well I own no common shares of any sort right now so it wasn’t of consequence.

Reviewing the “Share Losses of All Preferreds” listings I don’t see anything except some of the “usual suspects” moving much are all–once again losses are more in the 10-25 cent range for the most part–not a big deal.

Looking at personal accounts there was nothing of note occurring–few pennies of gains–few pennies of losses.

I assume those that hold mostly preferred stocks and baby bonds experienced the same that I experienced–not much. Unfortunately this won’t continue–eventually the losses bleed into income issues–when this happens no one knows–could be next week–or it may be next year. No time to be a nervous nellie now.

We had noted that we bought the Ready Capital 6.50% baby bonds this morning and are happy with this purchase. Anytime I can find anything that looks reasonable in this interest rate environment I am happy. I keep studying the Preferred Stock of Closed End Fund page for something of quality to be available–I really love the “A” rated issues even though they will be susceptible to capital losses if we get a surprise interest rate shock. If you want a Gabelli closed end fund right now you are looking at a 5% current yield (more or less) or to get a decent current return one could buy the Gabelli Equity Trust 5.875% (NYSE:GAB-H) which is trading at $26.20. This issue became callable in 2008. In this environment why the hell is someone paying over $26 for an issue that will be called anytime now–to be replaced with an issue with a coupon likely in the 5% area.

Well we will all just wait and see what next week brings–I am fairly certain we will big moves in equities next week–but have no idea what we will see the income issue markets.

How About Some Ready Capital Baby Bonds?

Of course we have investors of all types on the website, but as I was “shopping” for myself last night I came across an interesting baby bonds that really fits in my wheelhouse.

Ready Capital (NYSE:RC), a mortgage REIT, has a baby bond outstanding which is now in the early redemption period, which started 4/30/2019.

This issue is the Ready Capital Corporation 6.50% Senior Notes. The price of this issue has trended down lately as investors are anticipating a ‘potential’ call. This puts the current price at $25.35. The issue has a maturity date of 4/30/2021.

This particular issue has a 1% bonus payment if called before 4/30/2020–8 months from now so it would be called at 101%–$25.25–so no call risk at this particular time and price.

You may recall that RC just sold a 6.20% baby bond on 7/18/2019 so we have a decent idea of what type of coupon is available to them–we think they need a better coupon to be motivated to call the 6.50% issue–but one never knows.

Whether you believe you want to be involved with Ready Capital securities is an individual matter, but for myself, given the current interest rate situation, I will likely pick up a small position today. Each investor should do their own due diligence and see if this one might work for them.

Summary–RC has decent financials, the issue has no call risk, the coupon is superior to what is generally available right now, the issue has a maturity in less than 2 years.

JMP Group to Sell Baby Bonds – Correction

Correction–as Citadel points out they have not actually called for redemption of the old 8% issue as of this time. The registration statement states they intend to redeem all of the JMPB issue.

Securities dealer JMP Group LLC (NASDAQ:JMP) will be selling a new baby bond offering.

The company has NOT yet announced that they will be calling their 8% baby bond issue (Nasdaq:JMPB), which had previously been partially called on 7/31/2018, but within the offering documents they do state they intend to call these baby bonds.

Preliminary details of the new offering can be read here.

Thanks to Fabrib for catching this one last night under “Reader Initiated Alerts”.

Gladstone Capital Redeems Term Preferred

Again one of our holdings is being redeemed.

BDC Gladstone Capital Corp (NASDAQ:GLAD) announced the intention to redeem their 6% term preferred effective 10/2/2019. Fortunately this call only cost investors a few pennies as the issues was already trading with a potential call in mind. The earliest the issue could be redeemed was 9/30/2019.

The company is using their current credit facility to make the redemption. Our suspicion is that the company will come forward with a new term preferred with a coupon in the 5.25% to 5.50% area in the next month or two–and they will get it done because of the almost desperate need by investors for yield.

For years I have set 7% as a goal for our accounts. It is obvious that most likely this is 1 or even 2% too high (over the next year or two). Certainly an investor might garner some capital gains, but when I am studying quality issues with 5-5.50% coupons you find something that “works” in terms of call protection, 7% annually doesn’t really seem likely.

Interest Rates Remain Tame while Stocks Gyrate

I have been away for a couple of days and kind of out of touch with markets, but have to get back in the “swing of things” today or at least by tonight.

Interest rates have remained pretty tame for the last 3 days–it is hard to imagine them moving higher more than a few basis points, but we all know they can move lower on global weakness–and will eventually.

Powell speaks on Friday in Jackson Hole and hopefully he can get through the speech without moving markets around–really what is the point of even speaking, everyone knows where they are going with rates. On the flip side I guess the traders need a reason to move markets around–what else do you do during the deep dog days of summer.

Monday Morning Kickoff

The SP500 moved in a range last week of 2825 to 2943, closing at 2889–moving in a 4% range throughout the week is still plenty of movement and I think portends another somewhat wild week ahead for equities. Whether the moves are up or down is the question–we can see that at 6 am CST the futures are up about a percent.

The 10 year treasury moved in a range of 1.47% to 1.72% before closing the week at 1.54%. We are at the point where maybe we will see some stability in rates given that the domestic economic data is pretty decent.

The average $25 preferred stock and baby bond moved 13 cents higher last week and there are 152 issues trading at $25 or below.

The Fed balance sheet which now is in a supposed neutral mode grew by $5 billion last week, after growing $2 billion the week before.

Last week we had 2 new income issues announced.

Merchants Bancorp (NASDAQ:MBIN) announced a new fixed-to-floating rate preferred with an initial coupon of 6%, which begins to float in 2024. The issue is now trading at $25.65.

Brookfield Property Partners (NYSE:BPY) sold a new fixed rate 6.375% preferred issue trading under OTC ticker BKOYF. The issue is now trading at $24.99. This issue is a K-1 issuing security.

Website Changes

It never ends of course, but it is likely next week you will see some minor changes in the website. This will be things like font sizes etc.–nothing in terms of function.

Additionally I asked Chad to give us some options for commenting–I know that you all would like to see something where you could sort more specifically by topic or have a listing of comments from any given user. I have done some of my own research and have found some good add ons for wordpress–but being an old dude I need the younger tech folks to tell me what I can’t do–you can’t do this and you can’t do that. Well I kind of want what I want and I will figure out something–just might take a month or two–and usually when I say to ‘do it’ after they say it can’t be done it is just a matter of $$$.

Lastly under “coming attractions” is a project that I just initiated a week ago yesterday. Since it is new and not even close to complete (or even barely started) I can’t give many details–and it will take a month or two (or three), but let’s just say that all those damned Google Sheets slicing and dicing all the preferreds and baby bonds will go away and you will be able to slice and dice 700 securities (or more) the way you want to cut them. I am really excited about this project–truly, and I don’t get too excited about anything. Last Thursday I contracted with an ‘expert’ to execute this for us and committed a decent amount of money to getting it done–lots of steak dinners.

Ending the Week on a High Note

Looking at the bounce in equities today makes me wonder if this rally is here to stay–or do we get another plunge next week?

Right now I am mostly watching and waiting–I’m waiting to see how many high quality low coupon preferreds will be redeemed–I’m waiting for the China resolution (and not holding my breath)–I’m waiting for a market panic so I can scoop up some bargains. I’m waiting for a lot of things to happen–all which I believe will happen, but I have no idea when they will occur.

Yesterday our reader Fred noted that retail REIT Kimco (NYSE:KIM) was selling a 3.70% note with a maturity out in 2049–sick–30 years at 3.70%!! They will redeem the KIM-I 6% preferred issue and the KIM-K 5.625% preferred issue. Look for lots more of this kind of stuff ahead.

This afternoon we let go of our Saul Centers 6.875% preferred (NYSE:BFS-C) at $25.48. I had picked up a modest position last week when big sellers dumped the share price down to $25.05 (I paid around 25.11 on average). I know quite a few of you got on board as well. This issue will be called soon so the price should stay at $25.60 or below. It is trading around $25.47 right now so it has maybe 15 cents of call risk in it (assuming a 30 day notice is given). We just wanted a 1 or 1.5% gain so we got it and we are out.

Also we note that ‘fake utility’ Just Energy (NYSE:JE) has been taken to the woodshed bigtime. Looks like their 8.50% fixed-to-floating preferred (NYSE:JE-A) has taken a $6/share haircut since Wednesday and is trading at $17.24. So far the peer Spark Energy 8.75% fixed to floating rate has not fallen much in sympathy. I no longer hold much of the Spark Energy issue–it took a long time to get a meager profit from that ‘fake utility’ and I am not made for those wild rides.

Strong Economic Data Releases Soothes Markets

While we have seen wild recession fears the last couple of days this morning the U.S data releases have been strong.

This morning retail sales were released at up .7%—against a forecast of up.3%. Taking out autos sales were up 1% against a .2% forecast.

The Philly Fed manufacturing index was at 16.8 against a forecast of 10, while the New York empire state manufacturing index was at 4.8 against a forecast of 3.

Of course by now everyone has seen the Walmart sales numbers and profits—stellar—“party on Garth” (and Walmart).

After the release of this data the 30 year treasury popped back over 2% after falling below 2% for the first time in history.

While the above may serve to sooth the markets for now we know that if we get a number of days like yesterday where the DJIA plunges it will be trumpeted across the news continually–consumer confidence can be shattered as they look at their 40lK statements and recession can become a self fulfilling prophecy. We need to watch consumer confidence numbers in the months ahead.

We fully expect markets–interest rates and equity markets to gyrate – up and down for the next week — at least.

Also we are on the watch for the redemption of many, many baby bonds and preferred stock issues as companies rush to lock in long term coupons at extraordinarily low rates. Obviously we can’t react until these redemptions happen, but we will survive, albeit at lower coupons.

Lots of Fear in the Markets

Wow–there is a rush to ‘safety’ today. Some folks think U.S. Treasuries are safety as the 10 year has plunged down to 1.58% at this moment. Others think that buying gold is safety as the yellow metal has spiked up by $19/ounce.

For me it is sit and watch mostly. It looked dangerous all week–that fake-out rebound in stocks yesterday was almost a gift and I took a modest position in Proshares SP500 UltraShort (NYSE:SDS) which is proving to add nicely to 1 account today–I have moved my stop loss 3 times today following the market down. This is something I seldom do and when I do it more often than not I am wrong and lose money.

The preferred and baby bond arena is not selling off to speak of–plenty of stuff off 1/2% to 1%, but nothing dramatic–but that could come yet later in the week. Do we get a full blown panic and a dash for the doors? No one knows, but it could happen and we all need to have a strategy mapped out–what would you buy if preferreds fall 5% or 10%? What might you sell to redeploy elsewhere? As always I can’t direct anyone to investments, but income investors need to give this some thought today and tonight. Let’s not be caught without a plan.

A good place to watch the general action in large losers is this listing here. Right now (at 12:30 CDT) it isn’t showing anything out of the ordinary–but it might later. Most losers are the usual suspects–mall reits, shippers etc, but what tomorrow brings no one knows.

Brookfield Property Partners LP Prices Preferred Offering–Ticker Update


Bob in Thailand points out that the OTC ticker has been released as BKOYF.

Brookfield Property Partners LP (NASDAQ:BPY) has priced their new offering of preferred units.

The new units will have a fixed coupon of 6.375%. They have sold 10 million shares and they will be cumulative, but non qualified.

Being a partnership this issue will generate a K-1 for tax time.

Even though shares will likely trade on the OTC Grey market today the ticker has not been announced as of yet. We will post the ticker when known.

The pricing term sheet can be read here.

Chicken Soup for the Soul Entertainment Investor Presentation

Chicken Soup for the Soul Entertainment (NASDAQ:CSSE) has posted a new investor presentation.

The company has one of the highest couponed preferred stock currently outstanding. CSSEP has a coupon of 9.75% and pays monthly. You can see it here.

The presentation can be seen here.

As they say—high risk/high reward.

Brookfield Property Partners LP announces New Preferred Units

Brookfield Property Partners (NYSE:BPY) has announced the offering of new preferred units (MLPs issue ‘units’ instead of “stock’). The new issue will trade under the permanent ticker symbol of BPYPO. The issue should trade on the OTC Grey market prior to permanent trading on NASDAQ, but the OTC ticker is not yet known.

Being a partnership this issue will come with a K-1. It will be cumulative as well as having an early redemption period starting 9/30/2024.

Being a Canadian company (and registered in Bermuda) you might have your broker withholding taxes depending on your brokerage firm. Also some might try to charge a extra commission to purchase shares of a “foreign” company. This is dependent upon the type of account you purchase it in and your particular broker.

BPY already has 1 preferred unit issue outstanding which carries a 6.50% coupon. You can see it here.

The preliminary prospectus for the new issue can be read here.

Thanks to Eugene for getting this out early in the Reader Initiated Alerts about 2 hours ago.

Merchants Bancorp to Sell FTF Preferred Issue

Indiana regional banker Merchants Bancorp (NASDAQ:MBIN) has announced a new fixed-to-floating rate preferred issue. Merchants is a relatively small banker with $5 billion in assets.

Of course being a bank the issue is non-cumulative, but qualified. The early redemption date is in 10/2024 (and of course also when it begins to float)

The bank has announced a permanent ticker of MBINO on NASDAQ after OTC Grey market trading–the OTC ticker has not been announced.

The preliminary paperwork can be read here.

The company has another fixed-to-floating outstanding with a 7% coupon which can be seen here.

George was quick on the draw for a Monday morning on this one and via “Reader Initiated Alerts” alerted me to this issue. George is ‘hearing’ 6-6.125% on the fixed coupon.

Monday Morning Kickoff

In one of the “wildest” weeks of the year in common stocks the S&P 500 traded in a range of 2822 to 2939—about a 4% range. It had opened the week at 2898 and gyrated around before closing the week at 2619.

The 10 year treasury gyrated as well trading in a range of 1.59% to 1.79%–a very large range, before closing at Friday at 1.73%. Recall it was just 2 weeks ago that the 10 year closed the week at 2.08% so at the low of last week it was off 40 basis points.

The average $25/preferred stock and baby bond closed at $25.26 which is movement up of 1 penny from last week. There are 149 issue trading at $25 or below–this is 10 more issues than the previous week.

The Fed balance sheet grew by $2 billion last week. Recall that Fed Chair Jay Powell has announced an end to quantitative tightening (the end of the runoff)–we will follow this for a while to make sure that is the case. Recall that the Fed balance sheet hit a high of $4.51 trillion back in 2015 (it was less than a trillion in 2009) and then the runoff began which took us to the current level of $3.78 trillion.

We had 2 new income issues announced last week.

Aspen Insurance Holdings (NYSE:AHL) announced a low investment grade fixed rate preferred with a coupon of 5.625%. The issue is trading on the OTC yet under ticker AHLNF and last traded at $25.20.

New Residential Investment (NYSE:NRZ) sold a new issue of fixed-to-floating rate preferred with an initial coupon of 7.125%. It is trading under the OTC ticker of NRZEP and last traded at $24.99.

Uhaul (Amerco) Reports Earnings

Amerco (NASDAQ:UHAL) has reported earnings for the quarter ending 6/30/2019. The earnings are pretty darned good as the company had net income of $132 million on $1.079 billion in sales. We are not going to write much on this as those that have an interest can read the results here.

We mention this because of the Uhaulinvestorsclub, which is an alternative investment for income investors, such as those that frequent this website.

We personally have 2 IRA accounts that we started with Uhaul last year and have been funding with new money in the IRAs. The returns are not large–3% to 6% depending on what you desires are, but for us, now with about $15,000 in the accounts it is just another way to diversify with a reasonable level of risk. We may go as high as 5-10% of our assets in these notes.

Clicking here will take you to an earlier writing on the Uhaulinvestorsclub and for newer readers with an interest in an alternative income investment it might be worthwhile to see the earlier recap.