Stock Market Flys While Income Issues Creep Higher

We see that the DJIA is up by 350 points as we write this note–we are back into a “all news is good news” phase.  The equity markets are flying based upon a potential China trade deal–forget that part of the government is shut down and that Consumer Sentiment fell by a fairly large amount.

Consumer Sentiment, which we believe is one of the most important economic indicators, fell to a reading of 90.7 from a previous reading of 98.3 and expectations for a reading of 97.5.  We have to always remember that the consumer drives 2/3rds of the economy and the longer the government shutdown remains in place the lower the reading on sentiment will go.  At some point in time (I have no idea what that time frame is) you can pummel consumers back into their ‘economic hole’.  Our best guess on this whole situation is that the TSA employees will finally tire of their situation and will decide to shut down the nations airways–we’ll then have action–quick.

Interest rates are up a couple tics today–oh well, this is not a factor to be concerned with now–it is simply too low to matter.  We would be more concerned if rates began falling a bunch now as it would reflect substantial economic weakness.

There are virtually no new lows in baby bonds and preferred stocks on the ‘near new lows’ list.  We show a Seaspan and Scorpio Bulker baby bonds trading around par (and showing up as new lows) as they are near redemption so are locked into the $25 area.  The 3.50% Kayne Anderson MLP term preferred is showing up on the near new low sheet as it will trade right around $25 as it moves closer to a 2020 mandatory redemption.

We seem the new 8% issue from Chimera Investment is trading at $24.70 while the new JPMorgan Chase 6% issue is trading right at $24.99.  We see the Chimera issue having maybe 30 cents of upside in it for the next month while the JPM issue will trade a little higher (10 or 20 cents)–most of the currently outstanding JPM issues are trading around 5.95%.

A Snoozer of a Day

Wow it is really quiet in the markets today–it almost seems too quiet.  Our giant ‘master list near new lows‘ (within 1% of new lows)  shows only 5 issues today–and 2 of those issues are baby bonds that mature this year–which will keep them in the $25 area.

The 10 year treasury has moved in a 3 basis point range and is unchanged.  The DJIA and the SP500 have moved in ranges of less than 1/2% and remains near unchanged.

In the preferred stock and baby bond arena there is little movement–the vast majority of issues are in the plus/minus 25 cent area with just the usual suspect of PG&E issues bouncing a buck higher–probably on the lawsuit which was filed contesting their upcoming Chapter 11 filing.

We always love ‘calm’ days–but this one ‘feels’ (a scientific term and method) different.  There are way too many potential market movers out there to not be leery of a ‘event’ occurring.  Of course I am guessing we have removed one event from the near term horizon – higher interest rates.  The fear of higher rates is gone–rightly or wrongly.

We continue to watch the markets for potential bargains–most of which have disappeared, BUT the Brookfield Property REIT issue (BPRAP) remains in the $22.75 area which is a 7% current yield and we will likely buy a little more yet this week.

JPMorgan Chase Prices New Preferred

JPMorgan Chase has priced their new preferred stock with a fixed rate coupon of 6%–kind of skimpy.

This issue is investment grade.  Dividends will be non-cumulative (as virtually all banks and insurance company issues are non-cumulative).  Dividends will qualify for preferential tax treatment.

The final pricing document can be seen here.

As we mentioned yesterday it would seem likely that the bank will call their 6.70% issue which is currently outstanding (there are 7 issues outstanding) and becomes redeemable on 3/1/2019.

The issue will likely trade OTC Grey Market today, but the temporary ticker has not yet been announced.

Eagle Point Credit Company Monthly Update

Specialty finance company Eagle Point Credit Company (NYSE:ECC) has released their monthly business update.

While there are times that it seems the monthly report is overkill we believe the more info they put forward the better.  IN PARTICULAR because ECC is somewhat of a ‘blackbox’ invesment company—i.e. they invest primarily in Collateralized Loan Obligations (CLOs).

The company has 4 income securities outstanding that we keep an eye on–2 term preferreds and 2 baby bonds.

The monthly paying term preferreds have trade strongly all through the last month–dipping for only a short time before powering up to where they had started.  The ECCA issue has a coupon of 7.75% and the ECCB issue has the same coupon.

The baby bonds have traded a bit weaker than the preferreds because of the lower coupons of those issues and longer dated maturities.  ECCX has a coupon of 6.6875% with maturity in 2028.  While ECCY has a coupon of 6.75% with maturity in 2027.

Disclosure-we own the ECCA issue of term preferred.

Energizer Holdings Sells a $100/Share Convertible Preferred

Battery maker Energizer Holdings Inc (NYSE:ENR) has sold a new issue of $100/share Mandatory Convertible Preferred Stock.  The issue will carry a coupon of 7.50% which is fairly high and reflects the marginal overall credit rating of the issuer.

The shares will convert to common shares on 1/15/2022.

This issue started trading on the OTC Grey Market today under the temporary ticker of ENRXP.  The permanent ticker will be ENR-A when it moves to the NYSE.  Shares closed at $102.30 with near 2 million shares changing hands.

Energizer Holdings is rated B1 as a corporation by Moodys–middle of the pack junk.

The preliminary prospectus is here.

The final pricing document can be seen here.

We do not cover convertible shares to speak of, but will add it to the $50-$100/share issue page when it moves to the permanent trading exchange.


JPMorgan Chase Selling Fixed Rate Preferred

Giant banker JPMorgan Chase (NYSE:JPM) will be selling a new fixed rate, non cumulative preferred issue.  Of course the dividends will be qualified for preferential tax treatment.

The issue will be investment grade rated.

Preliminary filings can be seen here.

Final pricing and the temporary ticker for OTC Grey market trading are not yet known, but will be posted when known.

We note that JPM has a 6.70% issue outstanding (JPM-B) which becomes redeemable on 3/1/2019 and may well be redeemed on 3/1 with the proceeds from this issue.

New Chimera Investment Fixed-to-Floating Now Trading

The new 8% fixed-to-floating rate issue from mREIT Chimera Investment (NYSE:CIM) is now trading under the temporary OTC Grey Market Ticker of CMIMP.  The last trade as shown on eTrade crossed at $24.70.

As mentioned by a number of readers the spread on the CIM-B 8% fixed-to-floating, which is currently outstanding, is superior to the new issue.  The new issue has a spread of 5.379% starting in 2024 while the old 8% issue has a spread of 5.791% being on the same date.  The old issue is trading at $25.21–this would indicate to us there is modest opportunity for a ‘flip’ of the new issue–but it is just a 30 cent opportunity so it isn’t worth much.


The final pricing document can be seen here.

Chimera Investment Prices New Fixed-to-Floating–CORRECTED–FINAL

From the initial paperwork the initial coupon on this was lowered to 8%–FINRA which had the 8.125% obviously ‘misspoke’.  

The spread, which will be added to 3 month Libor starting 3/30/2024 is 5.379%–a reasonable spread we think.

In spite of the lower coupon we will have an interest in this issue.

The final pricing document is here.

As most investors probably know this issue will be unrated.  As with all mortgage REIT preferreds the dividends will be cumulative and non qualified for preferential tax treatment.



mREIT Chimera Investment (NYSE:CIM) has priced a new fixed-to-floating rate preferred at an initial coupon of 8.125%.  This is higher than we believed would be necessary, by .125%.

The issue will trade tomorrow on the Grey Market under the temporary ticker of CMIMP.  We have an interest in this offering depending on the spread which has not been released.



mREIT Chimera Investment Selling New Fixed-to-Floating

Finally we get someone stepping forward to sell a new issue of preferred stock-it is almost a month since we have seen a new issue.

mREIT Chimera Investment Corp (NYSE:CIM) is selling a new $25 issue of fixed to floating preferred.

Of course no details are out yet on the new issue but the company has 2 fixed to floating rate issues outstanding already plus 1 outstanding fixed rate issue.  The 2 fixed-to-floating rate issues have initial coupons of 7.75% and 8% while the fixed rate issue has a coupon of 8%.  You can see the current issues on the mREIT preferred page here.

Seems logical that the new issue will price at 7.875% or 8%.

Preliminary details of the new issue can be seen here.

Closing Out Our 12 Year Prosper Marketplace Experiment

Some readers will recall us mentioning the ‘peer-to-peer’ lending site Prosper.  This is simply a site where folks in need of a loan can borrow from other individuals.  I am now close to ending this 12 year ‘experiment’.  We are finally down to have just $106 in the account and as that closed out in the next month we are done with peer-to-peer lending.

We made our initial loan on this site in March of 2007.  At first it seemed like a promising site–a reasonable return for a reasonable risk.  Unfortunately the recession followed shortly after we began investing here and the losses turned from 1 here or there to somewhat of an avalanche.  I think over the course of the 1st 3 years over 25% of the portfolio of loans ended up being written off–this in spite of our attention to quality–never lending to low quality borrowers–so we thought.

It turns out that the Prosper methodology let lots of risk in the door-even though the borrower might have been ‘A’ rated.  This caused Prosper to tighten their standards and while there were fewer write-offs there continued to be defaults by borrowers with high credit ratings and supposedly high paying jobs.

In the end we ended up making over $13,000 worth of small loans (the actual loans were between $1000 and $25,000, but our ‘participation’ was never over $100/loan).  Our annualized return ended up being 4.59%–better than a sharp stick in the eye I guess, but not worth the personal heartburn created when a loan is made to an “A” borrower for a 3 year period only to have them default within 3 months.

So our learning with this very long experiment was that we will let bankers lend to folks and sustain the losses.  Personally we are not built to lend to individuals as we take the defaults too personally.

If we want to participate in peer-to-peer lending we will buy the 5.875% term preferred shares (RMPL-P) of RiverNorth Marketplace, a non public closed end fund, who has a large portfolio of peer-to-peer loans.

PG&E to File Chapter 11

I notice the California utility PG&E has announced the intention to file under Chapter 11 on January 29th–obviously the preferred shares are off plenty today and are trading around $11-15/share.

Will there be opportunity here in the future?  We don’t plan to get involved in any way with this situation–purely speculative and not where we ever want to play at our age.

Further detail can be found here.

Monday Morning Kickoff

The DJIA traded in a range of 23,300 to 24,014 last week before closing on Friday at 23,996 a gain of around 520 points.  The 10 year treasury traded in a range of 2.63% to 2.75% before closing the week at 2.70%.

Last week we had a number of interesting economic reports that might give us some strong clues on the future.  We had the ISM Manufacturing Index on Monday which came in below forecast and below November by a fair amount.  The JOLTS report (Job Openings and Labor Turnover report) on Tuesday came in with 6.9 million job openings versus 7.1 million on the previous report.  Consumer Credit for November was reported on Tuesday at growth of $22 billion versus $25 billion in October.  On Wednesday we had the release of the FOMC minutes from December being released.  While the release was fairly consistent with everything we had heard through various Fed governors who spout off on a regular basis there is plenty of lobbying going on for a ‘pause’ in rate increases (our forecast is for the next increase in June–if even then).  Friday we had the Consumer Price Index (CPI) come in at a minus .1%–the core rate which strips out food and energy rose .2%.  Also while the government hasn’t released new home sales because of the government shutdown others have released data showing new home sales down 19% in December–assuming this is near correct it is likely that the wild stock market  drops during the month contributed to some level of the drop.  With a bit of a lag you can always count on stock prices drops which go on days after day and week after week to affect economic data–it takes a month or two to show up, but the wealth effect individuals felt going up totally reverses to ‘the world is ending’–there will be economic consequences.

For this coming week we have the PPI (Producer Prices) on Tuesday and it is forecast to show falling prices at the producer level.  We also have the Empire State Index on Tuesday so we will see how manufacturing is holding up in New York.    On Wednesday we have Retail Sales for December being released.  Additionally we will see the Home Builders Index being released and we will see how builders are feeling–we could see more weakness here.  Thursday brings Housing Starts being released along with Building Permits.  We are going to also see the Philly Fed Index on Thursday.  Friday brings Industrial Production and Capacity Utilization.  Friday also brings us the very important Consumer Sentiment Index.  The consumer drives the economy and we are looking for weakness here–with the wild market actions in December and the government shutdown late in the month we are bound to see softness in sentiment.

All in all we are watching to see what kind of weakness we see in the macro economy.  Seems reasonable to believe we are going to see weakness–not strength as there simply is too much political turmoil occurring and we think if the politicians are unable to come to an agreement of sorts this week we are likely to see a sizable selloff in equity markets.

We saw that the Fed Balance Sheet fell by just $2 billion last week which is the smallest runoff we have seen in a month.

We had 1 new issue announced by Medallion Financial last week, but just like the 2 previously announced new issues they have not priced the issue.  We previously had new issues announced by Priority Income Fund and OFS Credit–neither has ever priced–guess they can’t round up enough buyers at the right price to get these issues off the ground.

The average $25/share preferred last week gained 25 cents last week giving us a 2 week gain of $1.12–pretty darned massive.  We have 265 issues still trading at $25/share or less with is about a dozen less than the week before.