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A Digestion Day – Darned Quiet

Well the S&P500 and DJIA are barely moving today – the 10 year treasury yield has moved a bit higher – 5 basis points, as all markets digest the gains from last Thursday and Friday and certainly there is plenty to digest.

The average share of preferred stock or baby bonds are off about 1/2% today – no real surprise after giant gains last week.

Tomorrow we have producer prices – expectations are for +.4%–certainly this could move markets if the actual comes in more than .1 off expectations (either way).

Today the New York Fed released their 1 year and 5 year inflation expectations – they moved both higher from their previous take – 1 year from 5.4% TO 5.9% and the 5 year from 2.2% to 2.4%.

I’ve done nothing at all today–just watching. Maybe a nibble after producer prices tomorrow.

15 thoughts on “A Digestion Day – Darned Quiet”

  1. I’m still digesting yesterday’s Vikings win (sorry Buffalo fans, not gloating, moreover still wondering if it really happened)! Cheers Windy

    1. NFL apologized to Vikes today for 2 big official screw ups that Bills benefited from late in game and still won. I had Vikes season 8.5 over bet and that is ready to be money in the bank! And good thing because my other bet was Colts 9 over, lol.

      1. Grid, what were the trifecta odds of:

        Brady being 5/5
        Stafford being 3/6
        Alabama losing 2 games in the regular season

        I am thinking it would be one of 1,000/1 . . .

        Good thing we only “bet” on sure things like preferreds/babys/crypto and NOT on any of the sports teams. . .

        1. Tex, yes, I like my odds better with preferreds, but it aint as easy this year as it was shooting fish in a barrell last year, ha.

      2. The NFL officials are dirty. They are fixing the games and being paid off,
        They decide almost every outcome of every game.
        They are as crooked as a politician.

    2. Well… I guess I turned that game off to soon… haha, I had to go check that this was indeed the game that I caught the 4th quarter of and watched Cousins & the Vikings screw up @ the 1 yd line before turning it off, or maybe it switched over to the Packers game.

      Also, sold my RilyL lot. Shot back up to near par. Rather, just play it safe, er half-way safe as I still hold the BB for 2026.

  2. Steal of the day. Sold MBINM $26.89 but 25% more MBINO 21.12. Floating nearly the same in a few years M pays an extra 59 cents dividend until O floats at higher dividend by todays rates tho rates may drop. No matter how I crunch the numbes I can’t justify anywhere near a $5 price difference.

    1. Not the easy comparison or decision you make it out to be.

      MBINM is fixed at a high 8.25% until 10/2027
      MBINO is fixed at 6% until 10/2024 then floats
      Plus M uses 5 year treasury while O uses Libor

      So a lot depends on what interest rates will be between 10/24 and 10/27
      There is value to many investors knowing you have a high 8.25% rate locked in for 5 years.
      And there is a time value of money.

      You probably come out a bit ahead with your swap in the long term assuming you would have held both for 5 plus year but I just think with this one it is a bit more nebulous, especially given the time frame

    1. Loans backed by crypto may have caused some bankruptcy risk because of the crypto crash. If they survive it’s a good deal. I don’t claim to understand crypto enough to judge the odds. cue clint eastwood “Do you feel lucky , punk?”

        1. This is wrong. You should check out the latest press release


          Reading your comments (and others around) make it clear why the SI Pref yields almost 10%, when similar QDI pref’s trade in the 7% range.

          SI has not lost any money on their loans, and it is unlikely they face any credit risks due to the structure of their Bitcoin based loans (very conservative LTV, with ability to liquidate if collateral falls to certain levels)

          Realistically the risks for SI is an earnings risk as the depositors might have less deposits, and there will be less earnings due to lower deposits. While this is not guaranteed I would expect their earnings to decline, although the positive headwind of the O/N rate being 3.8% should be factored in as well. In any event I would not expect any risk to the tiny $200MM pref issuance and over time the market will understand this and it will trade in line to similar issuances

          SBNY pref’s yield around 7% today
          SI Prefs yield around 10%
          SIVB Prefs yield around 7%

          You can put a perpetual discount for people not understanding the SI business model and I think a 7 – 7.5% yield is where these should trade. For some reason people are writing crazy FUD around them not being able to repay deposits, et al. They make money by parking it overnight and earning 3.8% and paying out close to 0 to depositors.

          7% would be $19.19
          7.5% would be $17.91

          This is all with the 10 Y T around 4%. If that reverts down to 2% I would expect this to trade back at par.

          Anything below the prints above are a great entry point. I have been buying the falling knife myself, so it sucks to see it, but frankly this has been kind of a gift, the market not understanding how SI makes money and the risks they are / are not taking, allowing for an amazing fixed income opportunity.

          Incase my disclosure was not clear, I hold this, and am continuing to buy at the current levels. Good luck!

          1. Daniel, we will stipulate that SI does not not have solvency risk due to the crypto loan business. Is is possible that some much FUD gets spread around that other depositers flee them? Depositers could easily force a bank run and whether the San Fran Fed will allow them access to the discount window is unknowable. Any percent chance of this scenario playing out? Even it is a low percent probability, it must be considered. If not, then I agree with you that SI-A is a screaming buy.

            1. Anything is possible. However SI depositors are institutional investors, exchanges, and generally speaking non retail investors that don’t get their news from rumors on Twitter!

              The FUD has effected the common stock mainly, and the preferred. As a pref investor I am focused on the likelihood they can continue paying out on their $200 mil pref ( which costs less than $11 mil a yr) and if they can pay it off in the future or if it will remain outstanding.

              Regarding a run on the bank, anything is possible but it seems unlikely as the SEN infrastructure has their depositors locked in pretty tight. They offer 24/7 real time settlement. That’s more valuable than ever. Especially in this environment. Also pay attention to their second most recent press release.

              Mr. Lane added, “In addition to our securities available-for-sale portfolio, which amounted to $8.3 billion at September 30, 2022, as a federally regulated banking institution, we have the ability to borrow from the Federal Home Loan Bank and the Federal Reserve Bank, further strengthening our liquidity position.”

              In short I expect they will have a solid quarter. Lose some deposits due to capital outflows from the industry but remain a strong bank with an incredible growth trajectory. In any event I sleep quite well at night that the $200 mil pref is covered nicely and secured. If they end up launching their stable coin , and they will be the only federally regulated bank that has it, or if their business 10x’s or if they get bought by a larger bank , that’s all gravy . Keep in mind this has been a profitable bank for a long time, and they are innovating so yeah my money is on the market mispricing the risk and I also think rates peaked so I expect that tailwind to drive this closer to $20 over the next year or so.

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