Author: Tim McPartland

Have you noticed? Have you noticed that while many of the preferred shares and baby bonds have moved sharply higher there are always laggards–some that seeming do not move higher regardless of interest rates. Someone asked about why Greenbrick Partners 5.75% perpetual (GRBK-A) was moving sharply higher–was there news? There was not news that I could find, but a writer on SA wrote an article on this security on 1/16/2024. Really that is all it takes to start ignition of a rise in share price. 1) Locate an undervalued security 2) write an article 3) wait for article traction 4) watch shares levitate. This is pretty normal – the share price was going to rise sooner or later with a 8% yield – it was just a matter to time and the article just boosted it quicker.

Another good example of this was the article “My Fixation with Bridgewater Bancorporation Preferred Stock” I wrote on 11/20. I ended the article with this sentence–Note that I am ‘talking my book’–this is not a recommendation, but at 9.55% current yield the risk/reward seems good – I would think a 10-20% capital gain is attainable in the next 3 months or so (plus dividends). The day I published that article was the bottom–down around $15.40–now trading at $19.81. It only takes some reasoned arguments to launch an undervalued issue higher.

As I noted yesterday I nibbled a little of the Sirius Point 8% Resettable preferred (SPNT-A) last Friday–this one has one more nibble left in it (for a full position). I expect this security to remain ‘pinned to par’ (well it isn’t really par–more like liquidation preference) for the next 2 years. While the issue is perpetual – with a reset that is likely to be over 10% the issue will be redeemed in 2026. I had a order entered for a nibble of Brighthouse Financial 6.6% preferred (BHFPA)–no execution–may try again today.

Well the 10 year treasury is trading at 4.06% this morning after the treasury announced they would need to borrow $25 billion less in the quarter than previously anticipated. Actually kind of a joke–$25 billion is not a meaning amount in the big scheme of the federal budget–just lots of money out there chasing investments–but in the last number of months ‘all news is good news’ and again our accounts hit record highs yesterday. There will be a day of when we get slammed–in the meantime enjoy the ride since we have no ability to predict the day of reckoning.

Well we are just 30 minutes from the release of the biggest economic number of the week (at least in some minds) – the personal consumption expenditure (PCE) report. Will this number–if showing inflation at an elevated level toss cold water on the pretty hot equity indexes? The obvious answer is who knows–no one. The 10 year treasury is trading at a yield of 4.12% right now – this after we saw mixed economic numbers released yesterday. GDP is running a bit hot, but inflation indicators continue to indicate moderating numbers.

Each morning when I tune the news in on CNBC (to be turned off at 8 a.m. central) I see news of layoffs from tech company’s – today it is 700 to be laid off at Salesforce. Also I see Levi Strauss is cutting 15% of their HQ staff and Norfolk Southern is cutting 7% of non unionized folks. In spite of this we don’t have major indications in employment stats that are cause for alarm. Are folks able to find employment quickly after a lay off? I still maintain that the Fed is watching employment closely when it comes to interest rate decisions.

Today I am entering 2 good til cancelled nibble orders (nibble because I don’t have much cash). I will add to 2 of my insurance positions–assuming my GTC orders execute. Remember that I am targeting 7%—I will add more Sirius Point 8% resettable (SPNT-B) preferred and Brighthouse 6.60% preferred (BHFAP). These will meet my target without undo risk.

I see that Atlanticus Holdings (ATLC) has finally priced their new baby bond at 9.25%–slightly better than I would have guessed considering this is a company that makes marginal loans to consumers. No thanks to holding any of this issue.

ok–time to wait on the PCE news–see if it is a yawner or fire works.

Well we had mixed economic news this morning GDP for the 4th quarter coming in hotter than forecast–not just a little–but much hotter. On the surface you might thing interest rates would move higher—but no rates have moved 5 basis points lower. Durable goods orders came in much softer than forecast and housing sales just came in hotter than expected.

Of course Tesla is taking a sound beating on weak earnings–actually described by some as a ‘train wreak’. Shares are down $80/share in the last month–ouch. It will be interesting to see if the Tesla bulls can drive shares back up or if reality will take hold of the price.

I am still awaiting pricing on the new baby bonds from Atlanticus Holdings–this lender to low quality borrowers must not like the number from the underwriters and they are continuing to haggle. This company has tons of bad loans—that is the business–high rates charged and a lot of bad loans. Their last 10-Q is here. Of course we will post pricing details when they are announced.

I keep watching CD rates—4.95% to 5.20% on Fido today–nothing wrong with a 3 month at 5.15%. No real funds to buy much for a few weeks – we’ll see what happens.

The last few days the 10 year treasury has crept higher and higher–on Wednesday the yield hit 4.18%–up from the low of 4.07% on Tuesday. Economic news continue to be slightly favorable–and this morning we have important news with the 1st read on 4th quarter GDP which is forecast at 2%. If GDP comes in hotter than forecast and is coupled with favorable initial jobless claims and favorable durable goods orders–all scheduled to be released at 7:30 a.m. (central) we have a recipe to see the 10 year yield climb into the 4.20’s–maybe higher. Right now the 10 year is at 4.16%.

Equity markets are overall very quiet this morning–the tiniest amount green. Of course most of the major indexes have been driven higher and higher by tech stocks–one has to wonder when this will end. AI hype can only take things so high, but we all know that if one wants to short equities based on thinking ‘it can’t go higher’ you will soon be broke. Seems to me something will ‘break’ and we will see a setback–and then we will move higher–who knows, we’ll have to wait and see.

Watching the small banker earnings coming in I see no one booking big losses or reserves. I post numerous earnings reports each night in the “Headlines of Interest” and I try to skim many of them–and I am not seeing anything frightening–maybe I am all wet and we will get through the year without banking issues. On the other hand most the time I have a good handle on these things–but my ‘timing’ is almost always early. These things take years to play out–companys can hide issues for a year or two, but at some point things come home to roost.

1 earnings report that I always read is from insurer WR Berkley (WRB)–mainly because their 5.7% baby bonds (WRB-E) are on of my largest sock drawer holdings. Incredibly well managed company with record earnings quarter after quarter. Shares are now trading at $25.02/share–I see on my laundry list of holdings I added shares on 10/10/2023 at $21.95–and bought the initial tranche a year or two ago–so large gains. Shares are in the sock drawer–not to be sold.

So today is another day of sitting on my hands–nothing to sell, nothing to buy–yet. I have been very pleased with my portfolio performance through January. Even though interest rates have moved higher our portfolios have gone up a little dab most days. Mostly through luck, our portfolio allocations have been just right, but February and March will test my ability to keep allocations right—so many CDs maturing–we’ll see I guess.

Well 45 minutes until ‘data’—I wouldn’t ride without your seat belt on this morning–better safe than sorry!!