Author: Tim McPartland

Looking at the equity futures this morning it looks like we are in for more ‘paint drying’ trading–and honestly if that continues I am fine with that.  Unfortunately it won’t continue – it will break hard in the next 10 days if the debt ceiling stalemate continues.

Interest rates are moving up a bit this morning – we are at 3.74% on the 10 year treasury.  This means mortgage rates are moving higher once again.  I saw a Zillow article yesterday that values in some of the most heated housing markets (i.e. Boise and Austin) have dropped sharply.  It happens (drops) on a regular basis – prices are driven up and of course they are going to correct–most are not dropping like Boise, which is off near 20%, but they are not rising.   If interest rates remain high and we finally have the long awaited recession we will see a housing bloodbath.

I see the Philly Fed non manufacturing index was just released at down 16–these smaller report while not market moving help to point to a FOMC rate pause in June–of course lots and lots of data yet to come in prior to the meeting (June 13-14).

I note that Fitch downgraded Allstate (ALL) yesterday and rated the new 7.375% preferred (ALL-J) at BB+, which is a notch below investment grade.  Given the hammering that insurance company’s have have taken in their investments and very high claims experience in their property and casualty businesses this is not a real surprise. But we all know how this works in insurance – a bad year means rates are jacked up and never come down again which creates giant profits down the road.  

Banking preferreds were strong yesterday – we are near a point when one is going to have to buy if they want ‘bargains’–but there is risk obviously.  I’ll be looking and nibbling this week.  I hold no full positions in any banking issue–not even ½ positions.  I own numerous issues in small quantities so will just nibble some more adding to the issues I own.  If you want to lock down 8% current yields you have to expose yourself to risk – there is no way to get around it.

Whether it was a regional or community bank both common and preferred shares bounced nicely on Wednesday. Of course the market moved sharply higher on debt ceiling hope–and I suppose we will see equities bounce more as that issue is resolved and we can get back to searching for the ‘recession that never arrives’.

A few issues mentioned here early yesterday bounced sharply higher–before I got around to looking for a buy – but I did initiate 1 new position on the VLYPO 5.5% FTF preferred. I wanted to start a small position in a Zion Bancorp issue – either the FTF ZIONO 6.3% preferred or as suggested by Charles and Arbitrage Trader in comments, the ZIONL 6.95% baby bond, but both shot higher and got away from me–oh well more opportunity will come around soon I am sure. With holdings of 6-7 regional/community bankers I will begin to build the positions larger – maybe starting next week – FOMO (fear of missing out) is building.

I see equity futures are up a tiny amount this morning–maybe after yesterdays rally we will pause and look around. The 10 year treasury closed at 3.58% yesterday–so still no real movement in rates over the last week or two–this is bound to change pretty soon.

I will be out of the office a lot today and tomorrow so I won’t post Headlines of Interest tonight

Each day that passes gives me a little more confidence that we may be near the end of the banking crisis—not there, but getting nearer.  Of course we always have plenty of issues to worry about–the debt ceiling and government spending, but let’s face it we won’t have a time where we can’t find something to worry about.

Last night I was working on the fixed-to-floating rate preferred stock page and noting the great bargains that are out there–or should I say ‘potential’ bargains.  3 issues in particular caught my eye.  Valley National 5.50% FTF (VLYPO) with a current coupon of 8.91%, current yield of 12.05% and of course a yield to worst of over 26%.  Zions Bancorp 6.3% FTF (ZIONO) with a current coupon of 9.58%, current yield of 11.79% and yield to worst in the 20% area.  Lastly the Goldman Sachs 5.50% FTF (GS-J) with a coupon of 8.98%, current yield of 8.99%, but with much more safety has a yield to worst of just around 9%–I suspect this issue will be called soon.  NOTE–the FTF spreadsheet calculates the coupon with real time 3 month libor–the GS issue just became floating so no dividend has been paid since entering the floating rate period.  The spreadsheet calculates the ‘potential’ coupon–the actual coupon only is known on the dividend determination date for each issue.

I am not recommending anyone buy any issue mentioned here–but I may just nibble in a very small way before the week is out.

Interest rates are still quiet today–3.51% on the 10 year treasury this morning–not much movement this week and this will probably remain true through the end of the week.  Next week we have more consequential economic news so markets should move.  We have Powell’s favored inflation gauge on the 26th (Friday)–personal consumption expenditures (PCE) data and with the FOMC meeting approaching that will be a huge number.

So let’s get going on the day.

Yesterday was kind of flattish in the income issues marketplace–some issues up ,some down–although some of the regional bankers took a pretty large leap up.  Customers Bancorp (CUBI), Valley National (VLY), Zions (ZION) and others saw their preferreds jump 2-8%–no particular reason for the jump except time has passed and each day that passes without a collapsing bank signals a potential end to the ‘crisis’.  On the other hand–in a giant overreaction, Allstate (ALL) preferreds tumbled with the announcement of a new preferred issue.

Today I see the 10 year treasury is at 3.48% this morning which is 2 basis points below yesterday’s close.  I am thinking we continue to see rates in a narrow range until the debt ceiling issue can be resolved so things should be flattish for the balance of the month.

Home Depot (HD) earnings were out this morning and comparable store sales were down–is this a proxy for the economy?  Certainly it is meaningful for home building and home improvement – I have no answer but these pieces of information add talking points to recession speculation.  We will have retail sales ex automobiles released here in a few minutes and this will add a little more color to the recession (potential) story.

I won’t be doing anything again today except potentially going ahead and buying either the new Allstate issue OR one of their currently outstanding issues.  I sat on my hands yesterday.