Innovative Income Investor | Innovative Income Investor

Waiting for the Next Shoe to Drop

Each day we hear less and less on the banking situation–is it gone? Resolved? Not a chance.

All through the financial system we are going to see band-aids being applied to deep problems–kick the can down the road some more, just like we have been doing since 20 years ago (or more). Regulators? I have little faith in the regulators of banks and insurance company’s – at least on the federal side of regulations – most insurance company’s operate under some sort of state regulators and maybe there is more nerve there to regulate–maybe.

So as we wait for another ‘shoe to drop’ it is near impossible to have huge amounts of confidence in investing–on one hand if you wring your hands and hold cash (or cash equivalents) you may miss out on some huge capital gains and very tasty current yields–on the other hand if you invest heavily and an ‘event’ happens you could get burned badly.

Yesterday I bought a position in the Jackson Financial 8% fixed rate reset preferred (JXN-A) and I added to my Lincoln Financial 9% preferred (LNC-D). These are small positions – 100’s of shares – not 1000’s of shares. I’m pretty conservative – and the odds I am going ‘all in’ on these issues (or similar issues) is exactly ZERO. I may add more in the next month or two, but I really want more data–i.e. earnings reports etc. I would rather look back and see that I missed some gains than to wake up some morning and find an ‘event’ has rocked the financial sector. It takes only 1 bad security to inflict massive portfolio pain on investors so I encourage folks to use caution and ‘leg in’ to positions.

So today we have a number of economic reports hitting starting in 90 minutes with retail and wholesale inventories at 7:30 a.m. followed up by the Case Shiller home price index and the FHFA home price index at 8 a.m. (central) and consumer confidence at 9. Market movers?–not likely too much. Fed vice chair Barr testifies to the house today–supposedly on banking, but who knows where this goes.

Well markets are quiet with little movement n the S&P500–let’s get it going and see if we can keep it quiet.

Headlines of Interest

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

Slow news day today.

Energy Transfer to Acquire Lotus Midstream in a $1.45 Billion Transaction

Nationwide Survey Finds 48% of Americans Have Less Than $1,000 in Savings, While 20% Have No Savings at All

ARMOUR Residential REIT, Inc. Announces Guidance for April 2023 Dividend Rate Per Common Share

Invesco Mortgage Capital Inc. Announces Quarterly Common Dividend and Provides Update on Estimated Results of Operations, Portfolio, Liquidity and Book Value

Fannie Mae Releases February 2023 Monthly Summary

Tweaking the reCaptha Security

We’ve had a couple folks note that the reCaptha security can sometimes be difficult for them.

I want to make everything as easy as possible for folks, but I have to try balancing easiness with the need to keep the ‘bots’ off our site. So far (in 6 years) I have been quite amazed to find very little bot action getting through–and believe me they are trying every hour of every day–I have the stats and they are crazy numbers hitting the site daily.

I have made a tweak to the security and we will see where we go from here. I will observe the spam and bots and see if it increases–if I see a bunch of bots getting through then I will have to re-tweak, but if not we will leave it with new settings. I do not want to be specific with the changes I have made (or will make) because I don’t want to attract spammers.

Stepping In for a Buy on This 9.36% Yielder

This morning I have initiated a position in Jackson Financial (JXN) 8.0% fixed-rate reset preferred (JXN-A).

As I have noted many times I am kind of full up on treasuries and CD’s at the 4.9% to 5.40% area and now is the time to try to buy some fairly solid high yielders to balance the portfolio out.

This year has played out like this – Great gains through January. Sold considerable amounts during February locking in some nice capital gains and started moving into more CD’s and treasuries–then we had the banking crisis which meant little activity. A week ago I started searching for issues that were fallen angels. I added shares of the Tricontinental 5% preferred and now I have added some Lincoln Financial 9% preferred and today the Jackson Financial 8% preferred. I have plenty of dry powder as I have had CD’s and treasuries mature that I bought in September

This issue (JXN-A) came to market on 3/6/2023–just before we had the ‘banking crisis’ appear and being an insurance issue (annuity) the company has been painted with the typical banking and insurance paint brush. This means that the preferred shares were slammed and now trade around $21.30 for a 9.36% current yield. The yield to 1st call (3/30/2028) is just over 12%. This issue is just 1 notch below investment grade from both S&P and Moody’s.

Over the weekend I did some digging on this issue and I find the financials very acceptable–although very complex, because the company does hedge their investments so you have hedging gains and losses which tend to muddy the picture but this is preferred to many of the banks which did not hedge their long duration investments and now regret it. The company has almost $300 billion in asset under management – so a pretty large company.

Now does this mean I think the banking crisis is ended? No, but if I wait to see if it has 100% this bargain will no longer be there – it will be trading much higher. This is a starter position and I may or may not buy more–don’t know until I see more data. This is not a recommendation – as always.

Monday Morning Kickoff

Last week the S&P500 rose by 1.4% which is a decent performance on a week with a Fed rate hike and this is actually the second week in a row with a 1.4% gain.

The 10 year treasury gyrated around before closing the week at 3.38%. Trading was in the 3.30% to 3.64% range, but because of a continuing rush to safety we see low rates. Seems to me we may have the low yield in place as yields are likely to start moving higher as the slow confidence building in the banking system continues—of course whether the confidence continues to build is dependent on whether we see more banks fail–we’ll see.

This week we have plenty of economic news to drive markets around–the big one is the PCE (personal consumption expenditures) on Friday since this is one of Jay Powell’s favorites (or so it is said) for indications of inflation.

As I mentioned last week the Fed balance sheet grew by $94 billion last week – so in 2 weeks we have grown the assets by just shy of $400 billion. This makes for an interesting chart–showing the peak balance sheet and the spike from levels reached as the FED implemented quantitative tightening.

**This chart shows the Fed balance sheet from 18 months ago to last week.**

Last week the average $25/share preferred stock and baby bond fell by 19 cents. Interestingly investment grade issue caught a bid and rose by 17 cents. Banking issues fell by 17 cents, mREITs fell by 9 cents, shippers fell by 18 cents, but CEF preferreds rose a dime.

Last week we had no new income issues price.