Category: General Commentary

It is interesting to watch markets–equities in particular. Since I seldom am a buyer of common stocks anymore it is not necessarily consequential where things move hour to hour, but as someone who has watched and studied these things for 53 years I still find it fascinating.

Yesterday started pretty soft then reversed and sprinted higher the rest of the day–today the S&P500 was off almost 1% and now has reversed and it down just .3%. The mood of traders is what is interesting–or is it ‘machines? Drive things in one direction and then drive them in the other direction. All this movement and yet the index is just 1.7% off of an all time high–quite interesting.

Surveying my holdings today it is becoming obvious that when I ‘lightened up’ on perpetuals last month it was a mistake–a mistake in that I didn’t just dump my perpetuals instead of ‘lightening up’. While the portfolio is still just a few 1/10%’s off all time highs it is always discouraging to see dividends and interest payments roll in while share prices move lower offsetting the nice payments. Just noise–all just noise. Watching the low coupon (or mid coupon) issues there are bargains being made–but that assumes interest rates stabilize or come down and I am very leery of that happening.

I am watching the term preferreds and baby bonds with maturities in the next few years–the only place I would be likely to do some buying–but not today.

Well as I type this the S&P500 has taken a fairly large dump–guess no one can decide what the future holds (really?).

The geopolitical events in Russia and Ukraine are causing a bit of a move to the ‘safety trade’ as the 10 year Treasury interest rates heads lower–it is trading at 4.37% down from yesterdays close of 4.41%. Equity indexes are lower by .3%. Neither moves are giant sized, but they are a taste of what may come in the next number of weeks and months –just what we need is another factor to move prices around (not really).

Whether it is geopolitical events or economic events that move markets my actions won’t change much–if any. At this time I simply am not going to buy perpetual preferreds or extremely long dated baby bonds –my preference is to not lose capital and for the time being the threat of higher rates means potential capital losses. The losses I have taken in the last month or so have been in perpetual preferreds–they down as much as 4-8%. Percentage wise the Brighthouse 5.37% (BHFAN) perpetual preferred is trading around $19.15 which is down from $21.30 6 weeks ago. With the current yield just over 7% I am tempted to buy more–BUT I won’t right now—maybe it will be $18 next month. For those looking for a solid income stream this might be a good one right now even with a threat of capital loss.

Money market and CD rates are holding fairly firm at 4.5% to 4.7% depending on terms. Not a bad yield relative to a decade of zero and a good ‘hiding spot’. A good flow of interest payments has kept my portfolio in decent shape–off the highs, but not by much.

Outside of some housing stats there won’t be much economic news today–although the geopolitical events could crop up at any moment. Let’s get the day going and see were the markets take us.

Indiana banker Merchants Bancorp (MBIN) has priced their most recent offering of preferred stock.

The issue prices at 7.625% for 9.2 million shares.

The issue is rated Ba3 by Moodys.

The pricing term sheet can be found here.

So yesterday Fed Chair did what he should have done a month ago–he tapped the brakes on potential Fed Funds rate cuts. It has been rare in the last year for Fed yakkers to lower expectations of what will happen to short term interest rates–instead continually setting expectations for further rate cuts. It is my view that we are in a good interest rate position–maybe short rates could go as low as 4.25%-BUT with what we know today there is no reason to get carried away to the downside. The Fed needs to save their bullets for when the data says we need cuts. Additionally the Fed balance sheet is still being ‘run off’ with balance sheet assets now under $7 trillion for the 1st time in years–this tool is still available for the Fed–to decrease or increase the run off rate. So the Fed has multiple tools available to affect interest rates–use them when data says it is needed–NOT when they back themselves into corners by yakking.

So this morning we get retail sales in about 30 minutes–last month we had a report showing strong sales–the forecast for today’s report is for modest growth in sales. Interestingly I was reading yesterday a quarterly report from a Canadian subprime lender (can’t remember who it was) showing bad loans went from 12% up into the 20% area–obviously Canadian sub prime borrowers are under pressure. Also it was reported a few days ago that the amount of debt that consumers have continues to rise quickly–almost at $18 trillion and delinquency rates are elevated at 3.5%. At some point in the future this isn’t going to end well–who knows when that time will come.

Well the 10 year Treasury is trading at 4.44% right now–in the area that it has been in for a few days–waiting for the supply/demand dynamics to move it up or down. Retail sales in 30 minutes could move the rate. Equity prices are lower this morning – attributed to the Jay Powell caution on interest rates earlier in the week.

No buying or selling is contemplated today in our portfolios–JUST collecting dividends and interest and today is a good dividend date (November 15). I have been noticing that a lot of the perpetual high quality, low coupon issues are off $1-$2 from their recent highs–they are tempting, but with at least a 50/50 chance of higher long term interest rates why would I want to buy these issues now?

Yesterday we had consumer prices (CPI) released and they were pretty much right on forecast. After the release interest rates fell–moving from the 4.42% area down to 4.36%–a somewhat normal reaction to good news (if hitting the forecast is good news). But that was it as interest rates reversed and continued to climb throughout the day all the way back to 4.46% before ending the day at 4.5%. Yesterday I heard someone (don’t remember who it was) taking the position that the Fed is going right down the same road as they previously took–lowering short rates even though the economy would appear to be decently strong with employment numbers that are also strong. Why is the Fed so intent to be lowering rates? I will have to say from a selfish perspective I like rates around where they are now–getting 4.6% or 4.7% is a fair rate for idle cash. We (income investors) went through years and years getting ‘hosed’ by the Feds insistence at have zero interest rates–let’s get back to normal and have rates above 4% for the long term.

This morning we have producer prices being released as well as the weekly employment claims numbers–how will interest rates react? It will be interesting to watch.

On Tuesday I bought a relatively small position in the new Sound Point Meridian Capital 8% term preferred (SPMA). I paid $24.86 and I see it is trading at $24.77 so at any lower price I may add a bit more. I reviewed all information available in historical documents from the company – it is limited given that the company was formed in 2022 and went public in 2024, but in the end I didn’t see a discernible different between this company and the other CLO owners (I.e. Eagle Point Credit)–the only missing part is a ‘history’. The company added more data with a earnings release yesterday.

November was a tough month for our portfolios–we ending up with the smallest gains in a year. Interest and dividend payments outweighed capital losses by a bit–a small bit. Gains were just .3%. Honestly we can’t depend on capital gains from this point forward which is why I am concentrating on the high yield sector for new buys. As we move forward and get a better read on interest rates it is likely that I will move back into some higher quality issues–when that time comes I have no earthly idea-but it will come.

Almost time for economic numbers so I will get my 30 minutes of CNBC–after which time I shut off the boob tube until I get some news late in the day.