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FOMC Now Has Cover for ‘Pause’

So today we had a dovish producer price index which was on top of the softer consumer price index–of course this is excellent news for us all.

With the most recent data the hawkishness of the Fed is no doubt going to be softened this month–but does that mean no rate hike?

The FOMC is in a pickle. Two weeks ago I thought–and many people thought — 25 basis points was a cinch while 50 basis points was ‘on the table’. Now any rate hikes at all will serve to worsen the banking situation–higher rates equal lower bond values. Of course the Fed now has backstopped much of the underwater bonds held by banks–but just the same the Fed will not want to exacerbate the situation. What to do? It will be extremely interesting to watch next Wednesday.

Today I bought more CDs–1 year maturity. Here is what I found at Fido right now for 1 year terms. I bought the American Express 5.35% which is call protected (as all those below are).

I took a look at the 2, 3 and 5 year maturity issues–but once you move out in maturity many (or most) are NOT call protected so for now I stuck to the 1 year. We will see where they go from here and what is offered–I have quite a few treasury notes maturing later this month so will be considering further CD’s. I really need the markets to calm before I start heading back into the preferred issues–of course I won’t catch the bottom in preferreds, but I never do since I am a lower risk investor.

Arbor Realty Trust Attacked

What has historically been one of my favorite commercial mREITs, Arbor Realty Trust (ABR), has had a blistering (and very poorly written) report published by a purported short seller. For those reading the various comment sections on this site you already know that a research firm named Ningi Research has published a paper accusing the company of massive fraud–very massive fraud. The report can be found here. The company has responded and their response is here. I won’t go into any details about the report, but suffice to say the report is written in a very child like fashion so whether this is a ‘serious’ report or not is questionable.

ABR has a number of preferred stock issues outstanding and the report has hurt the common and preferred of the company. At this time I have little or no exposure to the preferred shares.

FOMC Meeting Next Week Should be a Good One

Of course we won’t know the actual happenings of the FOMC meeting next week until the future, but at a minimum we will have a Jay Powell news conference next Wednesday at 1:30 p.m. (central) to provide some entertainment of sorts. Of course todays CPI report that was ‘on forecast’ gives the FOMC cover to raise only 25 basis points or maybe none at all. We will see what the producer price index comes in at tomorrow–PPI is forecast at up .3% versus .7% last month.

Interest rates are spring back up with the 10 year now up 12 basis points to 3.64% while the 2 year treasury is up 31 basis points to 4.34%. Guess folks think the bank thing is over–but probably not. Regulators are swarming all over the banks right now most likely and it wouldn’t be a surprise to see them seize a few more–you know they are out there.

In the meantime we have banking and insurance issues bouncing nicely higher–folks are likely looking for exits on some of these issues–folks that caught the falling knife yesterday may just be looking for a ‘trade’–a quick profit and there is nothing wrong with that move at all.

Looks like we have ‘cool heads’ in the room as I survey the comments–mostly in the Sandbox Page – that is great to see.

Banking Issues Bouncing Sharply

Just scanning the banking issues I see they are bouncing relatively sharply this morning–up 10% to 20%, but of course it is likely an overreaction, just like the selloffs of the last couple of days were overreactions.

Yesterday we saw a relatively sharp bounce in banking preferred issues during the course of the day–for instance the Customers Bancorp CUBI-F issue closed at $18.10 after being as low as $9.60. It is plenty painful to hold through a day like yesterday-but one has to ‘grin and bear it’. The bounces like we have seen are the times to ‘rebalance’ if you have to do it. I suspect we will see some further losses as folks move to that rebalanced position.

As the current crisis gets more in control we move on to (quickly I hope) changing rules and regulations. I know most of you know that the accounting for portfolio losses in the ‘hold to maturity’ category is highly suspect and this needs to be addressed. As xerty pointed out a day or two ago the banks have ‘fake’ equity numbers under current rules since their hold to maturity losses overwhelm their equity. So we will see changes in these accounting rules and likely huge sales of common share to build equity. It will be interesting to see how fast this proceeds and whether the solution actually fixes the problem.

Today we have equity futures up about 1/2% and interest rates are bouncing quite sharply with the 2 Year treasury up 24 basis points to 4.22% while the 10 year treasury is up 3 basis points to 3.61%. These rates have imploded the last couple of days so once again a bounce is to be expected.

Buckle up!! We have the consumer price index (CPI) being released in about an hour. The forecast is for a year over year number of 6% (compared to last months 6.4%) with the core rate at 5.5% versus 5.6% last month. A hot number will back the Fed into the corner relative to the next rate hike as they will need to hike rates–but of course this may conflict with the need to reduce rate hikes to stabilize the banking system–this should be interesting.

I see that Nomura Securities has now forecast a rate CUT at the next FOMC meeting and elimination of the quantitative tightening (QT) Fed balance sheet runoff. Pretty extreme and I think pretty unlikely. Right now I am guessing a 25 basis point hike with no change to QT–but we have data in an hour that may change everyone’s perspective.

I am looking at the Merchants Bancorp (MBIN) preferreds for additions to my current very small position. I will not be buying now as it is too soon for me after a crisis, but the company did pique my interest with their press release last night so I need to dig deeper. I will not be buying anything today.

Headlines of Interest

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

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UMH PROPERTIES, INC. ENTERS INTO NEW REVOLVING CREDIT AGREEMENT

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Synchronoss Technologies Confirms Receipt of Non-Binding Proposal from B. Riley Financial

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Scorpio Tankers Inc. Announces the Exercise of Purchase Options on Six Ships

Citizens Extends Branch Hours to Further Serve Customers and Communities

View Press Release

Dynex Capital, Inc. Declares Monthly Common Stock Dividend Of $0.13

Atlas Declares Quarterly Dividends on Common and Preferred Shares

Atlas Declares Quarterly Dividends on Common and Preferred Shares

Bank of America Declares Second Quarter 2023 Preferred Stock Dividends

Bank of America Declares Second Quarter 2023 Preferred Stock Dividends

Agree Realty Declares Monthly Common and Preferred Dividends

Agree Realty Declares Monthly Common and Preferred Dividends

Merchants Bancorp Confirms its Liquidity Remains Strong

Merchants Bancorp Confirms its Liquidity Remains Strong

At the Least An Interesting Day

So we have got nice bounces in some of the banking preferreds off their lows–i.e. First Republic (FRC) and Customers Bank (CUBI). As I mentioned earlier the ‘brave’ step in and buy and reap the benefits. From the comments section I see we had some ‘brave’ folks–no surprise. I hope folks didn’t panic out at the lows–I know it has been painful for many and one is always tempted to sell out at the bottom, but it seldom is the correct move (although if the FDIC seizes the bank that is a different story).

In a simple point of view one would guess that with the Fed stepping in with liquidity that all would be fine–NOT. This will take weeks if not months to finally all play out–hardly ever do they play out in a day or two.

If you have been hunting CDs today the offerings from the big banks no longer exist (at least on FIDO)–I suspect they have sold enough of them for now and we will see lower rates when we see them again. There are quite a few offerings from banks I have never heard of–I guess they are probably alright to own, but for now I will just collect money market interest.

Don’t unbuckle your seat belts just yet–we have CPI and PPI yet this week so there can be plenty of ‘excitement’.

To peruse the bank preferred carnage go here.

A Painful Day for Sure

My Customers Bank (CUBI) preferred and debt are being annihilated – an understatement. And in spite of plunging interest rates almost all issues are losers. At these levels I will hold – as mentioned they are modest positions (but painful just the same).

I had a nibble order in for one of the First Republic issues 2 cents above the ask and it wouldn’t execute – so I cancelled and have decided I will sit and not pursue the ‘hero’ role for now.

I did notice that CD rates are holding up so there is always that safe haven (I think) for now.

Watch First Republic Bank

FRC needs to be watched – their preferred issues are trading around $10 premarket – some under $10.

Are these a buy? Of course they are non-cumulative so a suspension hurts.

I will be watching closely to see if a small nibble is in order. NOT a recommendation that ANYONE listen to what I do. I simply think the risk/reward at $10/share is coming into an attractive range–with the Fed backstop in place.

Monday Morning Kickoff

Well here we go – a wild week is upon with lots and lots of banking news.

The S&P500 fell by a healthy 4.5% with most of the losses coming on Thursday and Friday. Volume on Friday was relatively huge, which will likely be seen again tomorrow.

Interest rates imploded last week as the 10 year treasury yield closed at 3.70% which was 27 basis points below the previous Friday close and 32 basis points below the high yield of 4.02% on Thursday.

The employment report came in hot last Friday with 311,000 new jobs in February – BUT the unemployment rate came in at 3.6% compared to a forecast of 3.4%–markets took this as dovish toward interest rates, but then the banking news began to overshadow all other news and rates imploded in a likely ‘flight to safety’.

This week we will have plenty of economic news–including the CPI and the PPI. The news is important, but whether the Fed reaction is normal will remain to be seen as banking will weigh heavy on Fed rate decisions come the end of the month.

The Federal Reserve balance sheet rose by about $3 billion last week after falling by $43 billion the week before.

Last week we had a large move lower in $25/share preferred shares and baby bonds. The average share dropped by 79 cents, investment grade issues fell by 81 cents, banking issues fell by $1.20 and mREIT issues fell by 85 cents.

Last week we had 1 new income issue sold from FTAI Aviation (FTAI). This was a fixed-rate reset with an initial coupon of 9.50%. This issue is now trading on the OTC exchange.

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