Innovative Income Investor | Innovative Income Investor

Waiting on Economic News

Seems like we are always waiting on some type of economic news—today it is the producer price index (PPI) which is expected to be slightly negative for December–as always a significant deviation could move markets sharply.

We also have retail sales today which has become somewhat important recently as everyone scans the horizon for signs of a slowing economy–this is also forecast to be negative – by 1%.

Right now equity futures are up a very small amount—1/3% on the S&P500 as we await news. Interest rates are at 3.46% on the 10 year treasury which is off 6-7 basis points from yesterday. Of course we all knows this can change instantly.

Yesterday the rally in income issues continued–in a very small way. Since I am out of the office I am not contemplating any type of buying or selling–maybe next week.

After a relatively quiet day yesterday equity futures are just slightly green this morning. Interest rates are off 4 basis points or so at 3.46%

No ‘Headlines of Interest’ This Week

I am out of the office for a few days this week so am without some of my equipment to effectively post information (beyond plain test) so I will not be posted headlines in the evening. I will be back into normal mode Friday morning.

Monday Morning Kickoff (on Tuesday)

Here we go again starting the week on Tuesday instead of on Monday – for the third time in the last month.

Last week the S&P500 rose by 2.7%—another great rally week after climbing 1.4% the previous week. Futures are trading off about 1/4% this morning after Goldman Sachs released soft earnings.

The 10 year treasury closed last week at 3.51% which was 6 basis points lower than the close the previous week. The yield had been as low as 3,43% on Thursday after the release of the Goldilocks Consumer Price Index (CPI). This week we have the producer price index on Wednesday and the forecast is for -.1%–of course a miss of magnitude could move markets substantially. There are many other economic reports this week that generally would not be market moving, but one never knows in the current environment. Interest rates are up 4 basis points this morning at 3.55%.

The Fed balance sheet was almost flat last week with assets rising by $1 billion.

Last week the average $25/share preferred and baby bond rose 32 cents which was a nice gain, but compared to the previous week (up 80 cents) was mild. Investment grade issues were up 28 cents, banks up 34 cents, mREIT issues were up 48 cents while CEF issues were only up 17 cents.

Last week we had 1 new income issue priced. mREIT Redwood Trust (RWT) priced a new fixed-rate-reset issue with a 10% initial coupon. The issue is trading on the OTC grey market under ticker RWTRP (changed from the chart below) and closed last week at $24.93.

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Looking Red Today

The big banks are reporting earnings this morning and are turning the equity indexes ‘red’–earnings are decent–above expectations, but forward guidance is more dicey.

I guess we won’t get an 8th day of gains in income issues–while interest rates are at 3.48% which is up 3 basis points from yesterday sharply red equities will likely drag preferreds and baby bonds lower—I guess on the bright side we are halfway through the month and thus closer to an end of month ‘payday’ in the form of dividends and interest–although January is not a huge month of payments.

As I mentioned I nibbled a CHS fixed to floating rate preferred yesterday. After their earnings report on Wednesday I felt emboldened to add to a current position–CHSCM 6.75% perpetual. I hold this issue because of the yield to worst and because it is trading just under $25. Investors should be very, very careful owning the CHSCP 8% issue with a -17% yield to call (annualized). I know from my research many, many years ago that this issue was owned heavily by cooperative members and thus got preferential treatment by management–BUT management was changed after their misguided nitrogen investments and with a potential call date in July (remember this issue was originally redeemable in 2008, but was amended to move the call date 15 years). This is a small issue of 3 million shares and could well get called–this should trade at $25.50 not $28.13.

Today we have no economic new of any magnitude—so markets should trade without these influences

Let’s go!!