Slipping and Sliding Into the Weekend

The weather is lousy in Minnesota with a big snowstorm and high winds forecast–I hate this weather–guess I need to go to AZ on a permanent basis. Oh well, guess I am stuck here with my wife who isn’t likely to move 1000 miles away from the grandkids. So I will just take a look at markets and see if there is any cheer there.

After the December holidays the new issue market doesn’t seem to be very active–am sure it will change. This week we had the new 4.75% perpetual priced by Wells Fargo (which I bought for hopefully a steak dinner flip–won’t hold too long) and the Triton International 6.875% perpetual, which I had hoped to buy, but decided not to chase it as it opened high and has traded in the 25.28 to 25.50 area.

Some folks on the Reader Initiated Alert page have noted that Seaspan (SSW) is going to delist their 7.25% baby bonds (SSWA) and plans to call them on 10/10/2020. Seaspan is doing some reorganization into a holding company structure. The press release is here.

The Fed has done relatively normal type REPO operations the last couple of days. Yesterday they did $39 billion in an overnight operation as well as a $35 billion term operation (14 day). Today they did a $53 billion 4 day operation (because of Martin Luther King day on Monday). As I noted earlier in the week the REPO plans for the next month were released and beyond a $5 billion reduction in the 14 day operation mid February it looks like liquidity will continue to be required at the levels we have seen in the last month or two.

The FED Balance Sheet data was released today and overall (REPO balances and FED buys/sells) the balance sheet grew by $26 billion in the last week–so ‘party on’ like its 1999. I didn’t think we would see multiple down weeks, because the ‘ball babies’ in stocks would cry.

Of course everybody is aware of the very low coupons we are seeing in the U.S.–but it is nothing compared to the rest of the globe. Giant self-storage company Public Storage (PSA) just sold a 500,000,000 Euro note with maturity in 2032 and a coupon of .875%–YIKES!! We are going to have to rewrite the playbook if this comes to the U.S.

At 1:30 PM CST we have the following pricing in preferreds and baby bonds. You can see that for the 1st time in 6 weeks $25 preferred stocks and baby bonds have tilted lower–not by much, although banking issues are off 5 cents in a week. Much of this downward tilt may be because we saw 72 issues go ex-dividend this week, but on the other hand we had big ex date weeks in December (for instance the end of December we had a week with about 130 issues going ex) that didn’t tilt the average price lower. So does this mean we have seen a peak? Guess we’ll know for sure in a few weeks.

Triton International Preferred Rockets Out of the Gate

In just one more example of chasing yield the new 6.875% Triton International perpetual preferred has shot higher this morning in early trading. Last I looked it was trading at $25.40.

I had hoped to buy some of these shares for a quick ‘flip’, but am not going to pay this price for the shares so I will move on.

Potential buyers of this new issue can consider the 7.375% TRTN-C issue which has a current yield of 7.04%. Note the yield to worst is lower, but with almost 5 years to first call date this is a minor factor.

Folks are saying that Fidelity is charging an extra $50 charge on commissions for Triton being foreign. I know eTrade doesn’t charge this, but some others may.

Triton International Prices Preferred Issue

As has been the case lately all coupons seem to come in 1/8% under the “price talk” number.

Container leasing company Triton International (TRTN) has priced a new issue of perpetual preferred at 6.875% (price talk number was 7%).

The company has 3 other issues outstanding which can be seen here. Investors will have to see where this new issue trades and then by comparing to those issues outstanding determine which best fits their needs.

The pricing term sheet can be read here.

Container Leasing Company Triton International to Sell New Preferred

Large container leasing firm Triton International (TRTN) has announced a new perpetual preferred stock issue.

The issue will have a early call date of 3/15/2025. The issue will be cumulative. It is likely that S&P will rate the issue B+ (non investment grade-speculative)

The issue should trade on the NYSE under TRTN-D when it hits the permanent exchange. There will be OTC Grey market trading, but the ticker has not yet been announced.

The company has 3 issues outstanding already with coupons of 7.375% to 8.5% which can be seen here.

The preliminary prospectus can be read here.

Thanks to mcg and EarlyBird for being on top of this new issue. EarlyBird is hearing coupon talk in the 7% area.

Wells Fargo & Co Prices Preferred Issue

Wells Fargo & Co (WFC) has priced the previously announced new preferred stock.

The company will sell 70 million shares with a coupon of 4.75%. There will be 10.5 million shares available for over allotment.

The issue will be investment grade, non-cumulative and qualified.

The issue will trade immediately on the OTC Grey market.

The pricing term sheet can be read here.

Interest Rates in Drift Lower Mode

Since we have all the euphoria of the “China Deal” behind us I guess there is no reason to drive interest rates higher (at least that is what the 10 year treasury is saying).

Previous to today when the “China Deal” came to the forefront rates would spike a few basis points higher as the talking heads would have us believe this is going to make GDP move bunches higher–something I don’t buy. Maybe the Chinese buy more from us–and maybe they don’t, but they can promise anything and do nothing–we will wait and see. Rates drifting lower tells me there are a lot of folks that are NOT buying the Chinese deal story.

The 10 year is now at 1.79%–off almost 3 basis points.

The FED REPO this morning was a $47.5 billion deal–the FED took Treasuries as collateral in the amount of $26.5 billion and $21 billion in agency mortgage collateral.

With a fairly large calendar of ex dividends yesterday we are seeing just a slight amount of give back in $25 baby bonds and preferreds stocks. 47 income issues went ex yesterday. Overall the average price is off 2 cents while investment grade preferreds are off 5 cents–maybe folks are tired of paying sky high prices for 4.75% coupons–I doubt it really.

Wells Fargo & Co to Sell New Preferred

Giant banker Wells Fargo & Co (WFC) will be selling a new issue of non-cumulative preferred stock. This will have a permanent ticker of WFC-Z when it hits the permanent exchange. The OTC Grey market ticker is not out yet.

The issue will no doubt be a large issue as giant banks sell giant preferred issues.

The company currently has 9 issues outstanding, with 3 currently callable and 1 becomes callable in September all of which can be seen here.

The issue will be non-cumulative, but qualified and will be investment grade.

The preliminary prospectus can be read here.

mcg had this very early with a estimated pricing around 4.875%. If you Prefer weighted in shortly after with the same price talk.

We Knew it Had To Happen and It Has

CEF Kayne Anderson MLP (KYN) has announced the redemption of their KYN-F 3.50% Mandatory Redeemable Preferred.

I hate to see it go–but we all knew it was coming–by 4/15/2020 at the latest as that is when it was mandatory.

The announcement is here.

The redemption date is 2/13/2020. So with this date the issue has a value of about $25.10 ($25 plus a January payment and 12 days in February).

The company will use proceeds from a private placement of preferreds to redeem the shares.

Disclosure–I hold somewhere around 1100 shares of this issue unless a GTC executed today (no such luck I am sure).

So Much for “Temporary” REPO Operations By FED

Finally we have the plans for repurchase operations by the FED for the next month.

As far as I can tell there is little change until the middle of February, when the 14 day repo will be trimmed down to the $30 billion area from the prior $35 billion area.

You can see the plans here if you have an interest.

As I mentioned a couple days ago this new schedule pretty much dovetails with what I expected–previous baloney from the FED on temporary repurchase operations is just that–BALONEY! I think we are going to see these ongoing through the year.

We will watch this in conjunction with the Quantatative Easing that the FED is doing to see what happens overall to the balance sheet–any reduction in assets on the balance sheet for longer than 1-2 weeks is likely to be met with a ‘tantrum’.

Everyday Income Issues Rip Higher

Yesterday we had 11 income issues go ex-dividend and I thought that might skew the average share price a bit–but in this market of yield hungry investors the ‘markdown’ of those 11 issues wasn’t enough to stop the move higher in prices.

Today with 47 issues going ex-dividend I am fairly certain the average price will stop going higher–for a day or two anyway.

Yesterday the average of all $25 issues moved 2 cents higher–although we did see the banking sector drop by 6 cents-the only sector to fall.

A Potentially Good “Shopping Day” Tomorrow

NOTE–I INVEST FOR THE LONG TERM WITH 60-70% OF AVAILABLE FUNDS–MORE IF I COULD FIND ACCEPTABLE RISK/REWARD. BELOW IS SOMETHING I DO ONLY FROM TIME TO TIME AND IT CERTAINLY IS NOT SOMETHING I ENCOURAGE FOLKS TO DO.

Tomorrow has the potential to be a good shopping day for those looking for potential ‘flip’ candidates.

Tomorrow (1/14) we will have 47 preferreds and baby bonds going ex-dividend–this to add to the 11 we had go ex today–a total of 58 issues today and tomorrow.

Folks that are looking to ‘flip’ (buy and hold for a short period–for me less than a month with hopes of a 1-2% gain) an investor MAY find it beneficial to buy on the ex-dividend date or within a couple of days as some issues tend to bounce back quickly from the “mark down” applied to share prices by the exchange to recognize that the shares are trading ex-dividend (without dividend).

The way this works is you had to own shares TODAY to receive the dividend/interest payment in the future–buying it tomorrow (the ex date) is too late for the current payment. The exchange that the shares are trading on will ‘mark down’ the shares by approximately the amount of the dividend–thus if the shares closed today at $26, but goes ex tomorrow for 50 cents the share price should open around $25.50 Tuesday.

Of course, in real life, the shares may be marked down by the ex amount, but never trade at that price. Shares could immediately move higher–or occasionally they will continue to fall further.

Some folks may ask “why go to all the trouble”–“why not just own it on the ex-dividend date and capture the dividend”? Certainly we have many investors on this website that do just that–they “buy and hold” for long term–and in fact that is what I mostly do–have a base of positions that I have held for years. Unfortunately because of low interest rates and high prices we have too much cash on hand.

Because of having too much cash on hand and no long term prospects to buy at this moment I resort to doing some ‘flipping’–many times of issues I don’t want to hold long term–in fact some I want to hold maybe a month at the max. Normally this is because the issue I am flipping is a lower quality issue that I am comfortable holding for years, but think I can squeeze 1-2% out of in a month or less.

So right now I am studying the list of issues going ex tomorrow and seeing which may have potential for bouncing back quick–most of the time determined by looking at the chart and secondly by determining how much in favor a sector has been lately. Once I pick a target issue I will watch it and when it looks stable in price I will make a buy–my intention is to hold until a 1-2% profit is realized–hopefully I will be out in less than 1 month.

Additionally I have an interest in shares that are in the early call period and trading at $25 plus accrued. For instance a favorite of mine is from insurer WR Berkley (WRB) and is a 5.625% subordinated note (WRB-B). The baby bonds have been callable since 5/18 and it is likely they will be called soon (or maybe not). WRB sold baby bonds at a 5.10% coupon recently so we know it would be advantageous to call the WRB-B. This issue has been a favorite of mine, but is currently at $25.80–and the dividend is only 35 cents so I sold my shares a while back at a nice gain. It is possible that the shares will be marked down by 35 cents tomorrow, but continue to fall since it should be obvious to everyone (at least anyone paying attention) that they are risking 45 cents by holding longer. If the shares were to continue to fall I might have an interest–but not until $25.05 or so.

Now it is too late to do what I call a “capture and flip”, but essentially it is capturing the dividend/interest and then waiting for upward movement in the share price and letting it go. You might notice that many issues start to move sharply higher 1-2 weeks before ex date as folks clamor in to capture the dividend. Then the issue is marked down by the ex amount and on ex dividend date immediately begins to move higher again. This can provide delicious gains when it works out–as much as 2-3% in a month.

Now FORGET EVERYTHING ABOVE!! These are extraordinary times–flipping, capture and capture and flip have been like “shooting ducks on a pond”. While we watch common stocks go up and up and I complain–honestly flipping etc has never been so easy. THIS WILL NOT LAST FOREVER! At some point I will have 2-3 flips in process and something will go wrong with interest rates etc and I will lose money on the flip. There are no guarantees in life–nor investing, but until it no longer works I will be doing some of it.

HERE IS THE MASTER LIST WITH EX-DIVIDEND DATES.

A Normal REPO Day

The Fed did a $60 billion overnight repurchase agreement this morning which is within their plans as far as I can see, but some pundits have noted that the FED is reducing the overall balance of REPOs outstanding–which is a part of why we saw the balance sheet assets fall.

I am most curious to see a new statement from the FED on the next 30 days. They should be publishing their plans any day now and it will give us a peek at what they plan (of course subject to change if the stock market pukes).

We saw the FED reduce the balance sheet last week by $24 billion, but I would be shocked if this was anything more than ‘timing’–maybe partially fueled by some reduced overall REPO balances.

A person could spend a day dissecting FED actions and learn absolutely nothing. For all of this to be meaningful we need to see weeks of reduced REPOs and weeks of balance sheet reductions (the REPOs are part of the balance sheet). Then we would know that there is a purposeful reduction in liquidity–instead of just timing. The markets will ‘sniff’ this out and at that point we will find out if the equity markets are going to accept it or if they are going to throw a ‘taper tantrum’.

Monday Morning Kickoff

The S&P500 moved higher last week with a low of 3214 and a high of 3283 before closing the week at 3265 a gain of over 1%.

The 10 year treasury which had been trading in a range of 1.87% to 1.94% for a number of weeks traded in a range of 1.76% to 1.90% last week before drifting lower into the end of the week to close at 1.84%.

The Fed Balance Sheet fell by a healthy $24 billion last week. While some have claimed this means the Fed is pulling the ‘punch bowl’ away I think it is simply a matter of timing. There is no way whatsoever that the Fed will stop or reduce QE. After taking the balance sheet up by $100 billion in December it was bound to slow down a bit.

Finally we have seen some new issuance of income issues with 2 new issues last week.

The Southern Company (SO) priced a new issue of Junior Subordinated Notes with a maturity date in 2080–the coupon is 4.95%–The ticker is SOJD

I have not seen this issue trade yet in normal markets–although I believe there has been some trading through the bond desk.

MetLife (MET) issued a new perpetual preferred with a coupon of 4.75%. The issue is trading under OTC temporary ticker METFL and last traded at $25.35–the hunger for safe yield continues.

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As I mentioned last Friday the average $25 issue moved a bit higher. Looking at the entire universe of preferreds and baby bonds prices were 4 cents higher. Investment grade preferreds moved 7 cents higher–while only mREITs remained exactly flat.

We have had no ex-dividend action to distort prices, so everything is ‘accruing’ dividends and interest which has tilted the average upward. Today we have 11 ex dividend issues and then we have over 40 tomorrow so average will likely move a bit lower for this week.

Sliding Into the Weekend

Employment numbers were within the expected range so we are not seeing much action today in any particular market–that’s good–I like quiet.

Interest rates have moved a bit lower on the tepid wage growth of .1% in the employment report so it is being extrapolated to mean no inflationary pressures. The 10 year treasury is off 3 basis points to the 1.83% area.

Last week the Fed Balance Sheet tumbled by a healthy $24 billion. Given that the balance sheet grew by $108 billion during December it is reasonable for there to be some reductions simply based on timing–I am 100% sure that the FED will continue QE (I say BS to the Fed claim this is not QE) in the next week or two. The plan remains for $60 billion a month in balance sheet growth–that would be $720 billion for the year if it continued–wow–all I can say is WOW!! With trillion dollar deficits as far as the eye can see this will not end well, but we have no way of knowing, or predicting, when bad stuff will happen so we simply have to labor on–it could be years before the ‘piper is paid’.

Today the Fed did a $41 billion overnight repo (actually 3 days because of the weekend). Nothing abnormal there–at least if we define ‘normal’ as what has occurred since September. I continue to watch for a new Fed statement on REPO plans for the next few months–I am not certain I need their statement–liquidity needs will continue and so will Fed REPO’s.

Lastly as of noon (central time) the average $25 preferred and baby bond is UP 2 cents since yesterday. We see common stocks go higher and higher, but no doubt that income issues are pushing the upper end of reality as well.

Plenty of Irrational Behavior In Preferred Arena

Almost daily I look at many preferred stock issues that I might want to own–some are for ‘flips’ but some are for long term holding.

My own searches and comments made by folks on the site usually lead to some preferreds with really interesting behavior — most of it appears to be ‘herd mentality‘ related.

This morning I was looking at the SL Green 6.50% perpetual (SLG-I) preferred as shown below.

The issue went ex dividend on 12/31 and was marked down by the dividend amount–in the $25.40 area–6 days later the issue is trading in the $26.40 area–$1 higher.

This pricing is crazy–at least if you are a rational investor. This issue has been callable since 8/2017.

I hope that those on this site that had owned the issue are now exiting–my guess is that some readers have nice profits on this issue on short term trades–that’s great, but now is time to exit. This is but 1 example of irrational behavior by buyers at $26.40–there are lots more.