Author: Innovative Income Investor

Interest rates continue to march higher with the 10 year at 3.63% this morning and the 2 year at 4.27%.  Yesterday, and for the last week or two, we have had some very calm equity markets irrespective of the move higher in interest rates–this won’t last forever–we will reach the point soon when common equities AND preferreds and baby bonds will react in a negative way.  We had the Silicon Valley Bank crisis in early March and income issues fell very hard.  Since mid March preferreds and baby bonds have climbed 4% from a panic selloff–more than ½ of losses have been recouped–how long will this bounce continue?  My guess is not much longer.

Yesterday, as I mentioned I added a very small amount of 3 regional/community banks preferreds.  I added to Merchants Bancorp, Bridgewater Bancorp and Heartland Financial.  These were all small positions and remain small, but their 7-8% current yields help to balance the 5% CDs and treasuries.  All of these report earnings next week so I will re-evaluate after we see the latest data.  My laundry list of holdings is here.

We had earnings yesterday from bankers First Horizon (FHN), Fulton Financial (FULT) and Western Alliance (WAL) all of which have preferreds outstanding.  As noted above next week Customers Bancorp (CUBI), Merchants Bancorp (MBIN), Bridgewater Bancorp (BWB) and Heartland Financial (HTLF) all report earnings next week.  A few items to note is that most of these banks do not have huge security portfolios thus the discussion of losses on holdings is minimal.  Also I note that we are seeing increased losses on commercial loans and as you might expect banks have had to pay a large FDIC assessment.

Also of interest Lincoln Financial (LNC) and Jackson Financial (JXN) both report in early May.

Big banks US Bancorp (USB) and Morgan Stanley (MS) reported this morning and earnings were good (as expected).  USB did show a jump in problem commercial real estate and I suspect we will see major issues in this segment when (if) we see a true recession.

Today I won’t be making any new purchases–not feeling the motivation today–plenty of dry powder resting in money market at decent rates.

Well Bank of America (BAC) is out with earnings this morning and as expected their numbers were very good–of course I am most interested in the small banks instead of the mega banks.The community/regional banks will pay me 2% more on their preferred issues and I think the risk/reward proposition is pretty good in the 7.5% to 8% current yields.  I am adding a  bit to some of my current regional/community bank holdings this morning–my current holdings are small and my adds very modest. My laundry list of holdings is here. All the banks are listed here.

Yesterday was a quiet, but positive day in equities–perfect for me. My portfolios were green, but flat is ok with me – nice interest and dividend payments coming in multiple times a month.  I really construct holdings for the best yield consistent with my risk tolerance level – capital gains are just ‘gravy’.

While it hasn’t gotten huge amounts of press in the last week interest rates have moved sharply higher–the 10 year at 3.59% is 30 basis points above 10 days ago.  The 2 year treasury note has really zoomed higher–now at 4.18% almost 40 basis points higher.  Of course these rates pale compared to a couple months ago so everything is relative–it has only been 7 weeks since the 2 year was at 5%.

Yesterday we had little important economic news.  Empire State Manufacturing came in very strong relative to expectations, while home builder confidence came in as expected and slightly up from last month.  Today we had housing starts and building permit data being released–housing starts about on target and permits somewhat soft. Likely these numbers are not market movers.

Markets are somewhat green this morning, let’s see if they hold their gains.