Category: Mid Day Ramble

The weather is lousy in Minnesota with a big snowstorm and high winds forecast–I hate this weather–guess I need to go to AZ on a permanent basis. Oh well, guess I am stuck here with my wife who isn’t likely to move 1000 miles away from the grandkids. So I will just take a look at markets and see if there is any cheer there.

After the December holidays the new issue market doesn’t seem to be very active–am sure it will change. This week we had the new 4.75% perpetual priced by Wells Fargo (which I bought for hopefully a steak dinner flip–won’t hold too long) and the Triton International 6.875% perpetual, which I had hoped to buy, but decided not to chase it as it opened high and has traded in the 25.28 to 25.50 area.

Some folks on the Reader Initiated Alert page have noted that Seaspan (SSW) is going to delist their 7.25% baby bonds (SSWA) and plans to call them on 10/10/2020. Seaspan is doing some reorganization into a holding company structure. The press release is here.

The Fed has done relatively normal type REPO operations the last couple of days. Yesterday they did $39 billion in an overnight operation as well as a $35 billion term operation (14 day). Today they did a $53 billion 4 day operation (because of Martin Luther King day on Monday). As I noted earlier in the week the REPO plans for the next month were released and beyond a $5 billion reduction in the 14 day operation mid February it looks like liquidity will continue to be required at the levels we have seen in the last month or two.

The FED Balance Sheet data was released today and overall (REPO balances and FED buys/sells) the balance sheet grew by $26 billion in the last week–so ‘party on’ like its 1999. I didn’t think we would see multiple down weeks, because the ‘ball babies’ in stocks would cry.

Of course everybody is aware of the very low coupons we are seeing in the U.S.–but it is nothing compared to the rest of the globe. Giant self-storage company Public Storage (PSA) just sold a 500,000,000 Euro note with maturity in 2032 and a coupon of .875%–YIKES!! We are going to have to rewrite the playbook if this comes to the U.S.

At 1:30 PM CST we have the following pricing in preferreds and baby bonds. You can see that for the 1st time in 6 weeks $25 preferred stocks and baby bonds have tilted lower–not by much, although banking issues are off 5 cents in a week. Much of this downward tilt may be because we saw 72 issues go ex-dividend this week, but on the other hand we had big ex date weeks in December (for instance the end of December we had a week with about 130 issues going ex) that didn’t tilt the average price lower. So does this mean we have seen a peak? Guess we’ll know for sure in a few weeks.

Since we have all the euphoria of the “China Deal” behind us I guess there is no reason to drive interest rates higher (at least that is what the 10 year treasury is saying).

Previous to today when the “China Deal” came to the forefront rates would spike a few basis points higher as the talking heads would have us believe this is going to make GDP move bunches higher–something I don’t buy. Maybe the Chinese buy more from us–and maybe they don’t, but they can promise anything and do nothing–we will wait and see. Rates drifting lower tells me there are a lot of folks that are NOT buying the Chinese deal story.

The 10 year is now at 1.79%–off almost 3 basis points.

The FED REPO this morning was a $47.5 billion deal–the FED took Treasuries as collateral in the amount of $26.5 billion and $21 billion in agency mortgage collateral.

With a fairly large calendar of ex dividends yesterday we are seeing just a slight amount of give back in $25 baby bonds and preferreds stocks. 47 income issues went ex yesterday. Overall the average price is off 2 cents while investment grade preferreds are off 5 cents–maybe folks are tired of paying sky high prices for 4.75% coupons–I doubt it really.

Finally we have the plans for repurchase operations by the FED for the next month.

As far as I can tell there is little change until the middle of February, when the 14 day repo will be trimmed down to the $30 billion area from the prior $35 billion area.

You can see the plans here if you have an interest.

As I mentioned a couple days ago this new schedule pretty much dovetails with what I expected–previous baloney from the FED on temporary repurchase operations is just that–BALONEY! I think we are going to see these ongoing through the year.

We will watch this in conjunction with the Quantatative Easing that the FED is doing to see what happens overall to the balance sheet–any reduction in assets on the balance sheet for longer than 1-2 weeks is likely to be met with a ‘tantrum’.

The Fed did a $60 billion overnight repurchase agreement this morning which is within their plans as far as I can see, but some pundits have noted that the FED is reducing the overall balance of REPOs outstanding–which is a part of why we saw the balance sheet assets fall.

I am most curious to see a new statement from the FED on the next 30 days. They should be publishing their plans any day now and it will give us a peek at what they plan (of course subject to change if the stock market pukes).

We saw the FED reduce the balance sheet last week by $24 billion, but I would be shocked if this was anything more than ‘timing’–maybe partially fueled by some reduced overall REPO balances.

A person could spend a day dissecting FED actions and learn absolutely nothing. For all of this to be meaningful we need to see weeks of reduced REPOs and weeks of balance sheet reductions (the REPOs are part of the balance sheet). Then we would know that there is a purposeful reduction in liquidity–instead of just timing. The markets will ‘sniff’ this out and at that point we will find out if the equity markets are going to accept it or if they are going to throw a ‘taper tantrum’.

Employment numbers were within the expected range so we are not seeing much action today in any particular market–that’s good–I like quiet.

Interest rates have moved a bit lower on the tepid wage growth of .1% in the employment report so it is being extrapolated to mean no inflationary pressures. The 10 year treasury is off 3 basis points to the 1.83% area.

Last week the Fed Balance Sheet tumbled by a healthy $24 billion. Given that the balance sheet grew by $108 billion during December it is reasonable for there to be some reductions simply based on timing–I am 100% sure that the FED will continue QE (I say BS to the Fed claim this is not QE) in the next week or two. The plan remains for $60 billion a month in balance sheet growth–that would be $720 billion for the year if it continued–wow–all I can say is WOW!! With trillion dollar deficits as far as the eye can see this will not end well, but we have no way of knowing, or predicting, when bad stuff will happen so we simply have to labor on–it could be years before the ‘piper is paid’.

Today the Fed did a $41 billion overnight repo (actually 3 days because of the weekend). Nothing abnormal there–at least if we define ‘normal’ as what has occurred since September. I continue to watch for a new Fed statement on REPO plans for the next few months–I am not certain I need their statement–liquidity needs will continue and so will Fed REPO’s.

Lastly as of noon (central time) the average $25 preferred and baby bond is UP 2 cents since yesterday. We see common stocks go higher and higher, but no doubt that income issues are pushing the upper end of reality as well.