Author: Tim McPartland

The earnings are rolling in this week and while I don’t  try to  do deep dives on most of them I do pay attention on a macro level—and most of them are pretty damned good.  I was surprised, in particular, how strong McDonald’s (MCD) revenue and earnings came out–just from a personal perspective we don’t stop there much anymore, but I guess many don’t agree with our assessment.  General Motors (GM) had stellar earnings-Mary Barra has been and is one of the best CEO’s in the country in my opinion. If we are near a recession most company’s didn’t get the message.

First Republic (FRC) is tumbling this morning after their earnings release late yesterday–the banker has plenty of challenges as they lost 40% of their deposits last quarter.  It will be many quarters before preferred dividends are paid on their preferred stock issues–if they ever are paid.  In recent years it seems that it has become more acceptable to screw preferred holders and being non cumulative will FRC ever feel compelled to pay preferred dividends?  

Today we have housing related economic news on tap.  We will have the Case Shiller Price Index and FHFA price index both being released at 8 a.m. (central).  Then we have new home sales and consumer confidence at 9 a.m.  My own observations on the housing market is that everything being built is being sold – no huge subdivisions of unsold properties at this point in time.  It will take a substantial jump in unemployment to shut down housing–everyone has a job who wants one.

Yesterday, as has become typical for me, I didn’t open my accounts at all – will do that before markets open, but obviously I didn’t buy or sell anything yesterday.  Honestly I want to add to my regional bank preferred holdings–great current yields are available in the 7-8% area, but I am resisting at this point in time.  As Tex the 2nd reminds us any bank can been seized by the FDIC in an instance–all it takes is a Twitter and Facebook fueled bank run–and I need to wrap my mind around this fact and determine the correct level of commitment to this sector.

Well let’s get this market rolling–yesterday was another day of ‘paint drying’–will today be a day with market movement or will be have another enjoyable day watching paint dry?

Depending on your source we have at least 4 – and as many as 7 Fed yakkers today.  Unlike past times when there were disagreements in policy I think the Fed folks will generally be in agreement that another ¼% rate hike is needed in May–and I think we will see that hike. 

Today we have economic news that could move markets.  We have the weekly 1st time unemployment claims at 7:30 a.m. (central)–forecast is for 244,000 versus 239,000 last week.  Continuing claims were at 1.81 million last week–and both new claims and continuing claims have been climbing slowly.  Also at that time we have the Philly Fed Manufacturing number–forecast is -20 after a -23 last month.  Remember we had a huge bounce higher in the New York manufacturing survey recently so we will see if these are in sync–or just pure baloney numbers.  At 9 a.m. we have leading economic indicators (LEI) forecast at a -.7% versus -.3% last month.

Last night we had earnings from Zion Bancorp (ZION)–deposits fell by 16%, but commercial loan losses were manageable and the company pointed out their commercial loan portfolio is well diversified by sector and geography.  I hope that all of these regionals are managed by competent folks as they have their job cut out for them especially if the recession arrives.  

I did nothing yesterday–not even opening accounts until after market close.  With my current portfolio composition I see a very much reduced amount of movement on a day to day basis and that is comforting.  We’ll see how that changes as CDs and treasuries mature–my laddered holdings range mostly from 3 month to 3 years with maturities virtually monthly–although I did go ahead and lock down small CDs as far out as 5 years.

Well let’s get this day going–equities looking a bit soft, but who knows whether that is how the day goes.

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.