Category: Mid Day Ramble

Irrespective of the 10 year treasury being at 3.48% there remains plenty of ‘fear’ from income investors–not about interest rates.

Generally we have prices that move with interest rates from the preferreds and baby bonds–but there are times–like now when the baby gets tossed out with the bath water as folks say ‘let me out’!! Quite obviously we are in the soup until we gain back a level of confidence in the banking system–and that is still weeks away. First Republic (FRC) is gyrating as the BIG banker talk of further actions.

I noticed someone snagged some of the Tri-Continental 5% preferred (TY-P) today at $47.29. Unfortunately it wasn’t me but 1,319 shares changed hands–heavy volume for this one–looks like a ‘get me out’ trade by the seller. I do have a G-T-C buy order in at slightly lower levels.

Just reviewed the CD rates–mostly out of curiosity, because I am not looking for more of them. Yields are off maybe 20-30 basis points depending on the maturity date and call protection provided.

So I am watching but not acting–need a bit more market confidence, but there are a number of utility issues I am watching and will write about in the next few days.

Ok–it has been a week or so in which I have been fixated on the banking issues and I am tiring of it. I hold a number of regional and community bank preferreds–all in modest position sizes. I have Customers Bancorp (CUBI) preferreds F (CUBI-F) and their debt issue (CUBB). I also have some Merchants Bancorp (MBIN) preferred (MBINO) and Bridgewater Bank preferred (BWBBP) and even in modest sizes they have been painful.

I am full to the gills in CDs and treasury notes and with rates now coming off I am hesitant to add to these areas–of course we all know this could change with further banking and economic news in the weeks ahead.

Its time to start focusing elsewhere. For me that is in the utilities and in the closed end fund (CEF) preferreds (I am not interested now in any of the specialty finance CEF preferreds–i.e. Oxford Lane, Eagle Point etc) . I hold positions in many, many issues in these segments and I see they are getting hammered today (the utilities in particular), but certainly they have outperformed the banking issues by a long way. In addition I may even add a REIT position or two–not sure.

Over the course of the next week or two I will post what I own and any nibbles I make during this time. I likely will add to some of my current positions, but I certainly will start some positions which are new to me.

Here is the master listing of utility preferreds and baby bonds. Here is the listing of CEF preferreds.

The 5.4% non callable mentioned below is gone–I doubled back to get a little and they are sold out.

I don’t watch CNBC much–a little bit premarket, but other than that it is so much news I don’t need, but on occasion I miss news items that happen minute to minute.

The big banks are going to ‘bail out’ First Republic (FRC)?? Wow that is decent news I think–I haven’t looked at the details, but I hear the big banks (jpmMorgan etc) are looking to put $20 billion into FRC. On the surface big banks bailing out small banks sure seems preferred to the treasury stepping in–whether it makes a difference depends on the true strength of the big banks.

Regardless the preferred shares of FRC are flying. After opening flat in the $9/share area all the issues are trading up $3-5/share. In fact when I look at the bank and insurance preferred page it is extremely green. Looking at my accounts they are modestly green also–I never argue with green.

I note today that we have a new CD available from Stearns Bank (which is in Minnesota) offering 5.4% on a 1 year–non callable issue. Not many available on Fido and I am sure they will be gone quick.

So today we had a dovish producer price index which was on top of the softer consumer price index–of course this is excellent news for us all.

With the most recent data the hawkishness of the Fed is no doubt going to be softened this month–but does that mean no rate hike?

The FOMC is in a pickle. Two weeks ago I thought–and many people thought — 25 basis points was a cinch while 50 basis points was ‘on the table’. Now any rate hikes at all will serve to worsen the banking situation–higher rates equal lower bond values. Of course the Fed now has backstopped much of the underwater bonds held by banks–but just the same the Fed will not want to exacerbate the situation. What to do? It will be extremely interesting to watch next Wednesday.

Today I bought more CDs–1 year maturity. Here is what I found at Fido right now for 1 year terms. I bought the American Express 5.35% which is call protected (as all those below are).

I took a look at the 2, 3 and 5 year maturity issues–but once you move out in maturity many (or most) are NOT call protected so for now I stuck to the 1 year. We will see where they go from here and what is offered–I have quite a few treasury notes maturing later this month so will be considering further CD’s. I really need the markets to calm before I start heading back into the preferred issues–of course I won’t catch the bottom in preferreds, but I never do since I am a lower risk investor.

Of course we won’t know the actual happenings of the FOMC meeting next week until the future, but at a minimum we will have a Jay Powell news conference next Wednesday at 1:30 p.m. (central) to provide some entertainment of sorts. Of course todays CPI report that was ‘on forecast’ gives the FOMC cover to raise only 25 basis points or maybe none at all. We will see what the producer price index comes in at tomorrow–PPI is forecast at up .3% versus .7% last month.

Interest rates are spring back up with the 10 year now up 12 basis points to 3.64% while the 2 year treasury is up 31 basis points to 4.34%. Guess folks think the bank thing is over–but probably not. Regulators are swarming all over the banks right now most likely and it wouldn’t be a surprise to see them seize a few more–you know they are out there.

In the meantime we have banking and insurance issues bouncing nicely higher–folks are likely looking for exits on some of these issues–folks that caught the falling knife yesterday may just be looking for a ‘trade’–a quick profit and there is nothing wrong with that move at all.

Looks like we have ‘cool heads’ in the room as I survey the comments–mostly in the Sandbox Page – that is great to see.