Innovative Income Investor | Innovative Income Investor

Up and Down Markets Vacillating Over Inflation

The S&P500 has taken a pretty fair ride today but in the end can’t decide which way it wants to go. Right now the index is up about 20 basis points.

The bond market is more guarded about inflation–the 10 year treasury yield is up 5 basis points at 3.75%—I tend to watch the bond market for direction–maybe I’m biased but bond traders seem to be more ‘level headed’.

Of course most of the inflation numbers (as measured by the CPI) were either on or very close to forecast this morning—and the talking heads are in plenty of disagreement as it relates to Fed policy. I think we have 50% of them that think the Fed needs to watch employment as the main driver of policy–while the other 50% believes that the slow 25 basis point hikes will bring economic activity down regardless of employment.

We see lots of layoff notices going out but the numbers in total are not huge–and the latest JOLTS (Job Openings and Labor Turnover) report for December shows a huge demand out there for workers. It’s hard to imagine the economy taking a huge hit with this many job openings (see below).

Income issues kind of look flattish today (just by eyeballing the spreadsheets)-my accounts are very slightly green—very slightly.

I did sell a chunk of my Liberty Broadband 7% cumulative redeemable preferred (LBRDP). I had been overweight this issue for quite some time so I had hung a Good til Cancelled order out there for some of it and I see that it executed.

Buckle Up-CPI on Deck

Well just an hour to go and we have another round of economic news (the CPI) that will more than likely send markets straight up or straight down–or if we are super lucky markets will do nothing at all–low odds of that happening.

Markets are expecting .4% and .3% on the core (ex food and energy) month over month. Year over year is expected at 6.2% versus 6.5% last month with core expected at 5.4% versus 5.7% last month. NOTE the the bureau of labor statistics (BLS) is making a couple changes in how the CPI is calculated for January–you can read about it here. They had made some changes in late 2022 also–so who really knows if we have apple to apple numbers.

Monday we saw the 10 year treasury yield move a couple basis points lower to 3.72% –really just drifting a bit. Equities moved solidly higher–over 1%. Guess investors are pretty confident in a favorable CPI report.

My accounts were green by .2% on Monday–nice after a few red days–but really meaningless –plus and minus a bit – I am hoping to just hold the line and collect dividends and interest.

Once again I trimmed a little today – very little. I had a Good Til Canceled sell order in on OFS Credit 6.125% term preferred (OCCIO) that triggered. No buying again and I have a decent stash of dry powder now-guessing maybe 13% . It seems to me that there is no rush to redeploy $$ when I can get over 4% in money markets right now.

Ok–let’s get it going!!

Headlines of Interest

Below are press releases from company’s with preferred stock or baby bonds outstanding–or just general news of interest.

Great Elm Group Reports Fiscal 2023 Second Quarter Financial Results

Vornado Announces Fourth Quarter 2022 Financial Results

Kite Realty Group Trust Reports Fourth Quarter and Full Year 2022 Operating Results and Provides 2023 Guidance

Freddie Mac Announces Release Date for Fourth Quarter and Full-Year 2022 Financial Results

Arch Capital Group Ltd. Reports 2022 Fourth Quarter Results

Global Partners LP to Host Fourth-Quarter and Full-Year 2022 Financial Results Conference Call on February 27, 2023

Investcorp Credit Management BDC, Inc. Announces Financial Results for the Quarter Ended December 31, 2022, and Quarterly and Supplemental Distributions

Agree Realty Declares Monthly Common and Preferred Dividends

COMSovereign Announces an 80% Year-Over-Year Reduction of Outstanding Secured Debt

Monday Morning Kickoff

The S&P500 ended the week down just over 1% –trading in a range of 4060 to 4176–about a 3% range. We didn’t really have any massively important economic data, but we had the chief Fed yakker Powell in a Q&A at the Washington Economics Club on Tuesday which had equities gyrating quite a bit before closing sharply higher–before drifting off for the balance of the week.

The 10 year treasury yield traveled in a range of 3.57% to 3.75% and closed the week right near the highs. The continuing strength in the economy and hawkish talk from the Fed is keeping pressure to the upside on yields. We saw lows in the 3.33% area just about 10 days ago, but it has been continual upside since that time.

For the coming week we have lots and lots of economic news coming. The biggest, of course, is the consumer price index (CPI) on Tuesday and then the producer price index (PPI) coming on Thursday. These numbers best come in near the forecasts or we are going to have the 10 year treasury yield up to 4%.

The Federal Reserve Balance Sheet grew by $2 billion in the last week to now be at $8.435 trillion.

Last week the average $25 preferred stock or baby bond issue fell by 19 cents–so almost 1%. Banking issues fell by 14 cents, investment grade issues fell by a larger 28 cents. mREIT issues fell by 22 cents and shippers fell by by 10 cents

Last week we had 1 new income issue priced–by Associated Banc-Corp–a fixed rate reset subordinated note. The ticker has not been announced and there has been no trading that I can find–although 1 person mentioned last week it was trading?

Ending the Week Red?

After January and the tremendous gains most of us experienced these ‘red’ days, which while not severe, are chipping away at some of those profits. I guess we won’t have 5-10% gains every month (big surprise). The S&P500 futures are off just over 1/2%–we will see if that holds or we get a reversal up during the day.

The 10 year treasury yield is popping a bit and now is at 3.71%up 3 basis points. Not much economic news to drive this today–we have the University of Michigan Inflation Expectations reading and a couple of Fed yakkers, but that is it.

I had noticed folks talking about the Bell South CORTS 7% resettable (KTBA) tender offer that is out there–very interesting. So we have 745 Capital LLC making a tender at $19–a slight premium to current price of $18.20. I couldn’t find out who is behind 745 Capital, but it makes sense to me that wealthy people might set up a company to buy under priced debt–hell if I had an extra billion or two lying around I would do it. I note that 745 Capital made a tender for shares of Ladenburg Thalman 6.50% debt last summer for $15/share–so two tenders at the opposite ends of the quality spectrum.

I haven’t done buying this week–but I have sold some of the specialty finance company term preferreds (i.e. Oxford Lane (OXLC) and Eagle Point Capital (ECC)). After vacillating for weeks I simply decided I didn’t need to hold these shares. Technically they should be ‘money good’ because of the need to have a 200% asset coverage ratio–BUT if there is a recession ahead there will be trouble in this sector. With higher interest rates the net asset values (on a common share) had tumbled quite a bit (although rising last month) in the last year. If the portfolios experienced larger downdrafts in a recession it will take quite a bit of ‘slight of hand’ to continue to hold 200% coverage. I simply don’t want to have to worry about my holdings. I maintain minimal holdings in these.

Well let’s get this day going!!