Author: Tim McPartland

Well at least looking at the equity futures it must be party time–the banking crisis is resolved and summer is almost here (although it is 9 degrees here in Minnesota)!!

Of course this is so much baloney – reading comments on this website there are plenty of opinions on what is the next issue–commercial real estate, debt ceiling, consumer credit or a plethora of other potential issues. We all know they are out there and we all know they will eventually have to be dealt with – but undoubtedly they will be not be dealt until something bad happens.

As individual investors we have to do the best we can to deal with what we can control – not to fixate on what we can’t control. One thing I can control is my investments – and right now I wouldn’t want to own any preferred stock or debt of commercial real estate related company’s. This means commercial mortgage REITs. I now don’t own any shares at all, although I did through January, but out they went in February. This would include Arbor Realty (ABR), Ready Capital (RC), KKR Real Estate (KREF), TPG Real Estate Finance (TRTX), Acres Commercial (ACRE) and others. The remote work movement is here to stay–and locally we are seeing numerous large employers not renewing leases as they intend to remain remote and have no need to lease the space.

But it is not only the mortgage REITs , but the office REITs such as Hudson Pacific, Vornado etc. that will have big, big issues. Already their preferred shares are trading way, way down. Hudson Pacific preferred closed at $9.52 yesterday. The Vornado issues are all trading in the $10-12/share area. I think some of these will be buys in the future–but this will take years to play out and there is no use trying to catch the falling knife–why buy something today for $10/share when you might get it at $5 later this year or in 2024 or 2025.

I did nothing yesterday except wish I would have bought more Jackson Financial 8% preferred (JXN-A). When I wrote about it on Monday I had bought hundreds (not thousands) of shares–either way a 13% gain in 2 days is very nice, but I suspect there will be setbacks and one can add shares if desired. Shares are now at $23.94 and I would not be surprised to see them at $27 in a month or two–but on the other hand I wouldn’t be surprised to see the share price at $21 if we have an ‘event’ of some sort. We’ll see.

Today I doubt I will do anything, although I have 2 utilities I am looking at – both issues I have current positions in. I’ll write about them in the next week. My plan continues – hold bunches of CDs and treasuries in the 5% area, buy issues of decent quality when the opportunity presents and recycle CD and treasury money on maturity over the course of 3 months to 2 years (although whether some goes back in CDs or into preferreds will be determined based on conditions at that time).

Each day we hear less and less on the banking situation–is it gone? Resolved? Not a chance.

All through the financial system we are going to see band-aids being applied to deep problems–kick the can down the road some more, just like we have been doing since 20 years ago (or more). Regulators? I have little faith in the regulators of banks and insurance company’s – at least on the federal side of regulations – most insurance company’s operate under some sort of state regulators and maybe there is more nerve there to regulate–maybe.

So as we wait for another ‘shoe to drop’ it is near impossible to have huge amounts of confidence in investing–on one hand if you wring your hands and hold cash (or cash equivalents) you may miss out on some huge capital gains and very tasty current yields–on the other hand if you invest heavily and an ‘event’ happens you could get burned badly.

Yesterday I bought a position in the Jackson Financial 8% fixed rate reset preferred (JXN-A) and I added to my Lincoln Financial 9% preferred (LNC-D). These are small positions – 100’s of shares – not 1000’s of shares. I’m pretty conservative – and the odds I am going ‘all in’ on these issues (or similar issues) is exactly ZERO. I may add more in the next month or two, but I really want more data–i.e. earnings reports etc. I would rather look back and see that I missed some gains than to wake up some morning and find an ‘event’ has rocked the financial sector. It takes only 1 bad security to inflict massive portfolio pain on investors so I encourage folks to use caution and ‘leg in’ to positions.

So today we have a number of economic reports hitting starting in 90 minutes with retail and wholesale inventories at 7:30 a.m. followed up by the Case Shiller home price index and the FHFA home price index at 8 a.m. (central) and consumer confidence at 9. Market movers?–not likely too much. Fed vice chair Barr testifies to the house today–supposedly on banking, but who knows where this goes.

Well markets are quiet with little movement n the S&P500–let’s get it going and see if we can keep it quiet.

On Wednesday I bought a small amount of the Lincoln Financial Group 9% non cumulative preferred stock (LNC-D) which was an add to my modest holdings in this issue. This purchase was executed off a good-til-cancelled buy order which was entered a few weeks back–then it moves a little lower–might have to buy a little more. Within the last month the issue has traded as high as $29–now at $24.58. It is kind of early to be jumping into most banking and insurance issues in a major way. Honestly I see so many ‘potential’ buys in the various issues it is difficult to hold back on buying–but I’m going to try to restrain myself for a few more days–but if one doesn’t ‘hold their nose’ and do a little buying it is highly likely a giant opportunity will be missed. With my CD and Treasury buckets full I need to step in a little bit.

Equities are tumbling a bit this morning – down almost 1%, while treasury yields are plunging—the 10 year now at 3.29%—incredible ‘rush to safety’ amid global banking concerns–now with Deutsche Bank potentially having problems. This bank, along with Credit Suisse, have been problems since was back in 2007-2010 so I guess we shouldn’t be surprised. Regardless this issue has a long, long way to run.

I see the Fed balance sheet rose around $100 billion in the last week–add this to the $300 billion rise from the previous week we see the balance sheet back up to round $8.8 trillion which is now just below the record high of about $9 trillion. Any thought on this ever reaching 0 in our lifetime should be forgotten about – it will never happen. Honestly the $400 billion increase in the last 2 weeks is lower than I would have guessed it would be as banks rushed to borrow on their depreciated assets–so maybe that is the bright side. We don’t know which banks have borrowed from the Fed – this data will not be announced until 2 years after the start of the program, although one can figure it out in the future by going through banking financial statements.

Well let’s get the day rolling and see where we go heading into the weekend.

Yesterday I added a ‘taste’ of the Lincoln Financial Group (LNC) 9% non cumulative preferred (LNC-D). I already had a position in this issue and it fell $3/share in the last 2 weeks. This buy came off a GTC buy order.

All insurance issues have been hammered fairly hard because of the banking crisis and the ‘mark to market’ debate. This issue is investment grade and was issued after the company took some massive write downs which destroyed the company equity. With a new CEO I believe they will do just fine–over time.