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Let’s Do It!!

Let’s Do It!!

That is what I have to tell myself each day to force myself to buy riskier assets than I really want to hold.

Like many of you I have piled up cash positions that are too high–that means around 30% and I will have a few more percentages coming in when the Kayne Anderson 3.50% issue (KYN-F) money comes in on redemption. New issues being offered are either too low in coupon or simply are not issues that are really in my wheelhouse–i.e. too high of a perceived risk.

So each day I have to force myself into riskier assets. Actually I don’t have to–but I want to–I think it is the right thing to do even though it doesn’t always feel good.

Given that I have 50-60% of my funds in base portfolio positions that I have held for a long time it makes some sense to ‘force’ myself out into risk.

I certainly don’t think that others should move out to riskier assets–each person has their own needs.

Here is what I have forced myself to do in the last week or so.

I bought ($25.43) a full position in TravelCenters 8% baby bonds (TANNL). The issue goes ex on 2/13 for 50 cents. There is a bit of call risk–but there is a 8.25% issue that is callable which would go first and it is likely these won’t be called anyway (although one never, ever knows for sure).

I bought ($25.71) a full position in B Riley 6.75% baby bonds (RILYO). The issue just went ex for 42 cents a few days ago–I bought before the ex date.

This morning I bought ($25.09) a position in UMH Properties 6.37% perpetual (UMH-D). The issue will go ex on 2/14 for 40 cents.

Each of these had other issues that could have been bought, but considering YTC, ex dates etc. these seemed the best for me at this time–other folks may look at things differently.

I won’t likely hold long term on these issues, but would like to realize a 1-2% short term gain before considering selling them.

Slight Website Tweaks

I have made a couple of tweaks today–hopefully not anything that is very noticeable.

The fonts on the right margin have been reduced 1 font size. I am always looking to gain ‘space’ and I a trying to squeeze in some new stuff on the right margin. Hopefully this is not too small for folks.

2ndly – today David and mcg were discussing a weird situation that popped up before, but I couldn’t isolate the issue, but this time they noted the issue more precisely so I could address it. When you are commenting there was a block that said “website”–honestly I don’t even know what it was for–some default setting I guess. Anyway when anything was put in that box it converted into a link which attached to the commenter’s name. This was not harmful, not any security issue, but it was annoying. The box ‘website’ has been eliminated so that annoyance should go away.

Triton International Dividends

This is just in case others were unclear as to the status of the dividends paid by Triton International (TRTN) on their preferred stock. The prospectus on the issues have always been unclear as to whether they pay qualified dividends or not.

ALL DIVIDENDS PAID ON THEIR PREFERREDS THUS FAR ARE ‘RETURN OF CAPITAL’.

Data on the status of the various dividends can be found here.

As most of you probably know when a dividend is designated as ‘return of capital’ it reduces your cost basis of the shares.

For Instance

If you pay $25 for a share and receive $2 in return of capital distributions your cost basis in now $23. If you sell it for $25 you will have a $2/share gain since your cost basis had been reduced to $23 through receipt of a return of capital distribution.

The return of capital is not taxable – but upon the sale of the shares you may have a capital gain (or loss) and you will need to then pay taxes (if in a taxable account).

Rates Back In Drift Down Mode

The 10 year treasury has moved back into the drift down mode–no economic news to move rates higher. Maybe moving lower on Chinese virus outbreaks. Seems we are always talking about China–one way or another. Now trading at 1.77%–down 7 basis points.

Preferred stocks and baby bonds are darned close to totally flat–the average of all $25 issues is the same as the close last Friday at $25.97. Most sector averages are plus and minus 1 penny. The biggtest mover I see in preferreds is the Kansas City Southern 4% non-cumulative (KSU- or KSU-P). This is an old (1962) illiquid issue and someone lost their mind in late December and drove the price up to $33 and now it is down to $28.98–still a crazy high price.

I am really surprised we are not seeing more new issues–2 last week and 2 the week before–a grand total of 4 issues this year.

Also I saw a dude on CNBC today pitching preferred stocks–that is really unusual–probably means we will have a little more competition hunting for yield–we sure don’t need more buyers–I would like to see some sellers.

Watch These Indicators For Weakness

I have always watched the consumer for weakness in the economy–sometimes I simply watch the Univ of Michigan consumer sentiment survey (below)-

At other times I watch some data which is a little more detailed–plus it comes to me in a RSS feed. Below you can see the consumer credit defaults for auto loans, credit cards and mortgages.

Property of Standard and Poors

While I seldom have worries about my investment grade holdings–the net asset value may moves, but I know the income stream will remain in tact. On the other hand many other holdings that are unrated or just ‘junky’ I worry most about a recession and the consumer being 70% of the economy will likely signal ‘recession ahead”.

It is only common sense that the above data should dovetail nicely with employment–so, of course, we watch those number closely as well.

I know the charts above are a bit hard to read–but I think they show that the consumer is generally healthy–coupled with employment being strong–I think it is safe to say if the status quo remains we are good for the next number of months (short of a black swan).

Monday Morning Kickoff (on Tuesday)

The S&P500 traded in a range of 3268 to 3330 last week which is where the index closed–up darn near 2%.

The 10 year treasury traded in a range of 1.78% to 1.85% and closed the week at 1.84%–which is exactly where it had closed the previous week.

The FED Balance Sheet rose by $26 billion last week. Recall that the balance sheet fell by $24 billion the week before–I was under no illusion that the FED would reduce overall liquidity for more than a week as equity markets would throw a tantrum.

Last week we had a couple of new income issues sold.

Wells Fargo & Company (WFC) sold a new issue of perpetual preferred stock with a 4.75% coupon.

The issue is trading on the OTC Grey Market under temporary ticker WFCZL and last traded at $25.04 last week.

Container leasing company Triton International LTD (TRTN) sold a new issue of perpetual preferred shares which carry a coupon of 6.875%. This issue opened strong at around $25.25 and closed the week at $25.50

The average $25 preferred and baby bonds closed a bit lower last week–2 cents overall. Banks were the only sector that closed notably lower being down 8 cents. We will have a total of around 17 issues going ex-dividend this week. Next week we will see around 30 issues going ex-dividend.

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.