Goldilocks GDP, But Alphabet and Amazon Rule the Markets

Even though we were anxiously awaiting todays GDP report it is Amazon and Alphabet ruling the markets today.

The GDP report came in near expectations at 3.5% and the markets are reacting very little to this particular report.

Amazon and Alphabet (Google) are ruling the equity markets today as AMZN is off $135 and Alphabet is off $52 as I write.  With revenues and earnings announced after the market close yesterday both companies disappointed, primarily with their perceived soft revenues.  We don’t follow these companies so we won’t/can’t really comment much on their results,  although last night after results were announced the shares immediately plunged dragging interest rates with them.

This morning the 10 year treasury is trading around 3.09-3.10% and moved little on the GDP report.  While stocks may move a bunch up and down today it is likely that interest rates will trade in a range of just a couple basis points.

Thus far we have not seen the soft stock market pull preferred prices lower we could see that happen soon if we get a DJIA ‘flush’ of 1000 points anytime soon.  For now we maintain a steady course of investing.

12 thoughts on “Goldilocks GDP, But Alphabet and Amazon Rule the Markets”

  1. interesting to see 3m LIBOR move up from being stuck around 2.30 for 6m to 2.52.. a little tax on income pass thru for levered CEF’s, REITs w variable debt and their lines of credit- and corp. lines of credit in general.

    1. The current live “Libors” have no worries now, but if one is buying a preferred that is currently fixed with the Libor float later, need to ponder the thought of Libor being replaced. The latest substitute being tossed around has shown to be a noticably lower rate than Libor is. Depends on prospectus but some are now suggesting they would revert to what is considered the “consensus” replacement.

      1. Very interesting and thought provoking. Not sure how to make this actionable. I suppose at any credible hint that LIBOR is going to go away the Pfds affected will start to discount that long before it actually happens as markets always do. Hard to sell ahead of this if, but there will for sure be some volatility as things adjust especially if its materially lower peg rate.

      2. it’s amazing that it is legal to change the original floating rate terms of floating preferreds from LIBOR to something else. I guess when it hurts the corporate Big Boys rules get tossed out the window.

        1. I found this July NY Times article on libor replacement interesting, and a good explanation of the basic issues. Everyone seems to be acting as if it won’t happen, but those in charge are insisting it will happen. :
          https://www.nytimes.com/2018/07/19/business/libor-future-2021-phase-out.html

          Recipe for a crisis.

          I still favor FTF securities, because it provides some protection. But if you take a substantial position, its worth wading through the prospectus. Many of the FTF prospectuses just state they will use what everyone agrees upon. But a few of them pick an alternative benchmark, and its usually favorable to the issuer. (What a surprise.)

  2. my point about LIBOR has nothing to do w the “LIBOR” replacement discussion.. which seems to come up a lot here and I feel you folks are missing the point … companies/reits/CEFs are going to have to pay more interest!

    1. Bea, I understand your point. But that is the allure of “live” Libor preferreds in 2 ways. It protects the backside if they are callable (the only ones I am ever interested in) and increases yield. One of course has to be mindful of a companies cash flow and ability to pay and roll over any maturing debt on top of it though, also.

  3. Havent done much recently but made one small ball re-entry purchase. Bought 20 shares of MTB-C today at $1010. I flip this one often. Earlier this quarter I bought about $1008 and sold at $1020 for small ball easy profits (technically I flipped the twin sister MTB-P). Getting in today allows me to capture the $15.93 divi going ex 10/31. So really this was bought under its 6.375% par price. Kind of surprised this wasnt announced for redemption on 11/15 payment, but live on it does. Outside of its twin sister MTB-, and unbuyable FIISO, this investment grade perpetual is the only cumulative QDI bank preferred left on the market.

    1. At that price it’s no lose. I was expecting a call at first opp, at least until rates went up. I’m not adding but I will gladly hold for 6.375 from a BBB bank.

      1. Bob, these are the stocks that I have largely stayed in for years with the anticipation of what is going on now. When you stick with and trade in and out of “why they hell havent they been called” issues, you really get that back side price support when bought around par. One is probably stealing about 40 basis points minimum with this yield. On a $25 par issue that is easily a $1.50 plus price support. While its yield is above market average in terms of yield and safety, its just low enough to not be worth a redemption/reissue do to underwriting costs. Though they want to get that cumulative off the books. Since this was a TARP issue it is almost certain to be excluded from new Basel 3 rules just like ALLY-A, FIISO, BANFP, etc. But whenver they do, it will be no cap loss to me at this price point.

  4. RE: LIBOR replacement. Don’t get worked up, people. You aren’t going to see the floor drop out on F2F, no matter what the NYT and CNBC (or others) say. They need a story, and this is a story.

    Fact is LIBOR is a TERRIBLE index. It’s not a market rate. It’s a theoretical interest rate quote from London branch banks, averaged. It’s made up, it’s subject to manipulation, and it has been manipulated. It’s a vestige of a by-gone era. It’s demise, in the end, will be a good thing. (Side note – same comment for Fed funds rate – its artificial, subject to manipulation, and is manipulated.)

    If you look through the various prospectuses you will see the subject of LIBOR replacement handled many different ways. Some are silent on the issues; some leave it in the hands of a supposedly neutral third party; some have “make-up” provisions.

    Whatever the provision, whatever the replacement for LIBOR, issuers are not going to be able to stiff investors by substitution an index that represent a downward shift in the yield curve. To the extent that happens, there is the legal system to prevent that.

    I expect a few issues to get litigated but most (certainly on a value basis) will not. You will be kept whole, more or less.

    So says me.

    1. Its idle speculation, but hey what else is there to do? There has been increasing chatter to go to SOFR (Secured Overnight Financing Rate) to replace Libor. If one looks at the chart there is a noticable lower rate with SOFR than Libor. For all the bad things Libor may be, it usually was to the benefit of one holding a Libor adjustable yield as its yield was manipulated up not down. My point of concern was people holding preferreds that held very modest Libor kickers such as high 3s and low 4s. Simple math shows 25 basis points is usually around a $1 loss in preferred stock price on a 6% ish yield. So a few basis points could be potentially harmful, especially when one was expecting the adjustable to protect the price, not lower it.
      Nothing to panic about clearly as you mentioned, Bob. But something to be aware of. I usually dont buy something with that in mind though. If I want adjustable protection, I buy it live and currently in force.

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