Tim McPartland | Innovative Income Investor

What a Day – Crazy!!

I was watching my charts as the CPI was released today and it showed exactly what I expected (up or down)–a rocket up almost 1000 Dow points and a huge drop in interest rates.

I didn’t expect that the indexes would give back everything (or almost everything)–fortunately interest rates remain low at 3.48% – down 12 basis points on the day, although the 10 year was as low as 3.43%. Income issues have skyrocketed–one of my accounts is up about 3/4% which helps to restore some losses from previous days.

As we look forward to tomorrow and the FOMC meeting (started today) we can be very certain that we will see a 50 basis point hike–todays report cemented that in–but I also expect Powell, during the news conference, to be fairly sober and warn that it would be easy for inflation to remain hot or even tick higher. But certainly there should be no surprises relative to in the fed funds interest rate hike.

Keep your seatbelts on for tomorrow–and hope you don’t need them.

Waiting for Giant News

Well it is just about an hour until the consumer price index for November is released and there hasn’t been a more anticipated inflation number this year – we are just at the cusp of an announcement of the next interest rate hike making the number even more anticipated.

Expectations are for 7.3% (versus 7.7%) year on year with core CPI at 6.1% (versus 6.3%). Numbers more than a 1/10% or two outside expectations are likely to send markets (stocks and bonds) flying–all I can do is cross my fingers for mild reacts (ha ha – the algos don’t know mild – just overreaction).

Yesterday was a pretty quiet day in income issues even though the 10 year treasury rose 4 basis points. This morning interest rates are down a few basis points–really just drifting as we await the inflation numbers. Equity futures are up over 1/2% this morning–futures are always suspect in terms of pointing the way for regular hours trading and of course today they mean nothing–CPI will determine regular trading.

Of course I did nothing yesterday investment wise – kind of the norm for me – once one is positioned comfortably with investments there is little follow up actions required except occasional ‘check-ins’ on my accounts.

So now I will sit back and see what 7:30 a.m. brings us in the way of inflation.

Headlines of Interest

Below are some press releases from company’s that have preferred stock and baby bonds outstanding.

New York Mortgage Trust Declares Fourth Quarter 2022 Common Stock Dividend of $0.10 Per Share, and Preferred Stock Dividends

Diana Shipping Inc. Announces Direct Continuation Of Time Charter Contract For M/V Alcmene With SwissMarine

Newtek Business Services Corp. to Hold Investor Conference Call on Wednesday, December 14, 2022 at 8:30 am ET

Dynagas LNG Partners LP Reports Results for the Three and Nine Months Ended September 30, 2022

TPG RE Finance Trust, Inc. Declares Cash Dividend on Common Stock

OFS Credit Company Announces Fourth Fiscal Quarter and Fiscal 2022 Financial Results

Bank of America Corporation Announces Expiration and Results of Cash Tender Offers by BofA Securities Inc. for Certain Outstanding Depositary Shares of Bank of America Corporation

REIT Gladstone Commercial Approves Preferred Shares Buyback

REIT Gladstone Commercial (GOOD) has approved up to $20 million in buybacks of their preferred shares through open market transactions. Both of their issues are trading $5/share below liquidation value ($25s/share).

The press release is here.

The 2 outstanding issues can be found here. There are about 6.5 million shares outstanding in total.

StackingNickels had this in ‘reader alerts’ comments very early today.

OFS Credit Posts New Investor Presentation

CLO owner OFS Credit Company (OCCI) has posted a new investor presentation.

The presentation is here.

OCCI has 2 term preferreds outstanding which can be seen here.

Monday Morning Kickoff

Last week the S&P500 sold down by 3.4% closing the week at 3934.

The 10 year treasury closed the week at 3.57% which was 7 basis points higher than the close the previous Friday. The yield traded in a range of 3.40% to 3.61%—all things considered (news) this is lower yield than I would have expected. Economic news generally either met expectations or was hotter than expected. PPI came in at .3% versus .2% expected–consumer sentiment was better than expected. Jobless claims came in at 230,000–at expectations.

This week, of course, we have the FOMC meeting starting tomorrow and wrapping up on Wednesday–they will hike 50 basis points. We do have economic news of high importance tomorrow in the form of the consumer price index (CPI)–7.3% is expected year over year compared to 7.8% last month.

The Fed balance sheet dropped by $2 billion–now at $8.528 trillion. This balance sheet will never reach 0, but the lower it gets the better–to prepare for the next quantitative easing cycle.

Last week preferred stocks and baby bonds took a hit Friday afternoon after trading calmly early in the day. For the week the average share fell by 37 cents for the week. Investment grade issues were off 35 cents , banking issues 31 cents and mREIT issues were off 41 cents.

Last week we had 1 new income issue priced. Athene Holding which is owned by Apollo Global Management (APO), priced a new fixed rate reset at an initial coupon of 7.75%. The issue is trading on the OTC grey market now under ticker ATHLL (changed from the ticker in the chart below) and closed at $25.15 Friday.

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Shareholder Protections for Latest New Preferred Issues

The has been plenty of talk and concern of preferred issues being ‘delisted’ after mergers/acquisitions lately. Of course there are delistings that have occurred not related to mergers/acquisitions–simply because of management deciding to delist (i.e. AmTrust Financial). Management can be labeled thieves and criminals–but in the end we all need to protect our interests by understanding potential protections in prospectuses or at least understanding our risk up front.

Today I was reading (more closely than normal) the prospectuses from the last 2 new issue preferreds. This would be the new Lincoln Financial Group 9.00% preferred (LNC-D) and the new issue from Athene Holding–a 7.75% fixed rate reset preferred (ATHLL)

Athene is owned 100% by Apollo Global Management (APO) which complicates the situation even further.

I found NO particular protection on either of these issues for the preferred stock holders. NOTHING requiring redemptions in the event of a merger/acquisitions. NO conversion requirement. NOTHING.

So my point is that investors should be aware of the situation and if they are uncomfortable either don’t buy the issue or keep the position on the smaller side. I own the Lincoln Financial preferred, but simply will keep my position at a modest level. I will not buy the Athene issue–although I already own a little of another Athene issue and may simply unload it.

I now will post my findings on the individual security pages–IF anyone finds protections I have overlooked please let me know as this is not always a cut and dried interpretation.

Below is what I will add to the security page for LNC. If I find protections I will list them.

Interesting Close to the Week

The stock indexes are pretty darned quiet this morning–all morning. The futures markets took a huge tumble of 2-3% at 7:30 am (central) when the producer price index (PPI) was released. PPI came in at .3% versus forecast of .2%—obviously the ‘algos’ didn’t like it, but honestly it is kind of a yawner.

Interest rates (the 10 year treasury) popped on the PPI release–up 6-8 basis points to 3.56% now. Given that it traded as low at 3.40% yesterday 3.56% seems just fine–not sure it should have been at 3.40% anyway.

Consumer sentiment came in better than expected, while inflation expectations held steady at .3%.

Preferreds and baby bonds are red today–maybe 75% of the issues red–BUT the red is most nickels and dimes–mostly nothing severe.

This has probably been the least active week for me in terms of buys and sells–I did nothing–not a single transaction. Next week I will almost certainly do some selling–sales around the edges, to free up some cash. Bargains remain in the high quality sector–6% to 6.50% area. I may dip into the Highland Income Fund 5.375% preferred which is rated A1 by Moody’s–current yield of 6.74% with a yield to 1st call of 18%. Management of Highland had been trying some ‘sketchy’ moves early this year (or was it last year) and I want to do more due diligence before pulling the trigger on this one because obviously the marketplace doesn’t like the issue as it is trading at $19.97.