Innovative Income Investor | Innovative Income Investor

No Headlines Tuesday and Wednesday

I am away from my desktop computer until t0morrow night and will not be able to publish ‘headlines’ on Tuesday and Wednesday.

Weekly Kickoff – On Tuesday

Here we go again—it could be a relatively quiet week, although we do have FOMC minutes being released on Wednesday and this can always set off fireworks-one never knows.

The S&P500 moved higher last week by 3/4% and now just a tiny amount below a record level. This week is starting off looking some higher, but the future market gains can evaporate quickly.

The 10 year Treasury closed last week at 4.47% (down 2 basis points from the previous Friday). At this moment (5:30 central) the 10 year is at 4.52%–up 5 basis points. As noted the economic news is somewhat light this week, but we don’t know what kind of curve balls that the new administration will throw at the market. My thoughts are that the 10 year will continue in the relatively modest range until we get to next week when we have the PCE being released–we’ll see which way rates get pushed.

The Fed balance sheet grew by $3 billion last week–a rare increase which will be offset by falls in the weeks ahead no doubt. The chart of the balance sheet levels is an interesting chart–falling back front the highs quite dramatically.

The average $25 preferred and baby bond rose by 7 cents. Investment grade issues moved 15 cents higher with banks up a dime, mREIT issues up 6 cents and shippers continue to hover around the $25 area and down 3 cents.

XAI Octagon Term Preferred Trading Around $25.02

This term preferred (XFLT-A) will give 6.50% for the next year before mandatory redemption in March, 2026.

I hold an overweight position in this issue. It has traded steady as a rock for quite a while as we move closer to the redemption date.

XAI Octagon is a closed end fund.

Not a recommendation, but a notification for consideration.

Equities Still Near Record Highs!

We have almost daily chaotic events in the government and interest rates which are pretty stubborn about coming down–YET equities are still near record highs. The S&P500 closed yesterday 6115–against a record close of 6128. Crazy strength given the uncertainties that surround us.

Today I will be buying a fixed rate reset preferred–one that is very likely to be called in July–thus only 2 dividend payments. The Wintrust Financial 6.875% issue (WTFCP) gets reset in July at the rate of they 5 year Treasury plus a spread of 6.507%–I don’t think there is any way that this strong banker lets the rate get reset to the 11% area–of course maybe one would be lucky and get an extra quarter of high yield. Of course this is a temporary play intended to get a slightly better return than CDs and money market.

I continue to debate with myself adding a nibble more of a fixed to floating rate mREIT preferred of which I already own numerous issues, BUT I always remain cautious about going over board on high yield–they are high yield for a reason. Earnings released from the mREIT issues have remained pretty darned good, but one knows how fast this can change. My understanding of all the moving parts of these companies is not the best–I can slice and dice the financials of General Motors, General Mills or equity REITS with the best of them, but not so with the mREITs.

I look at perpetuals and so badly want to buy some–but why? To buy more perpetuals at this time I have to be able to convince myself that there is a capital gains component–and I sure am not certain that now is the time–certainly a view that reflects my conservative nature.

Retail sales just came out and they were soft–not really a market moving number though although the 10 year Treasury is of a basis points or two at 4.49%–we’ll see if these rates can break out of the bottom at 4.40% or if we are stuck around 4.50% for the balance of the month.

Don’t forget that markets are closed on Monday for Presidents day.

Headlines of Interest for Holders of Preferred Stock or Baby Bonds

Below are press releases from companies with preferred stock and baby bonds outstanding. Additionally, news of a more macro economic importance may be posted.