Wow talk about missing the mark with earnings–Walmart and Target laid giant sized earning misses on the market. Analyst thought Walmart yesterday was a one off–but Target proved that wasn’t the case by missing by about $1/share today.
These are ominous signs for the economy–a strong consumer, yet profits for some are fleeting. The Fed is going to be backed into a corner and will never, ever do all the interest rate hikes that they claim they will do. Part of my thesis is that with these weakening retailer profits layoffs are going to begin–when you can’t control costs of goods there is always the quick and easy way to cut costs–labor. Shareholders will demand some sort of action and we have already experienced Amazon and Walmart communicate that head counts are too high. Target will do the same. When big, highly visible employers start cutting jobs consumers will ‘pull their horns in’.
This is going to take months to play out–maybe September and October and while it is likely rate increases for June and July will take place – after that point I am thinking it will be very questionable–maybe a pause for observation. Shortly thereafter we will enter a recession in 4th quarter 2022. The question is where will inflation be at that point?
I must say…I was hurt early on in my preferred holdings when the fed raised rates , but they have been holding up nicely during the last 30 days. Adding a bit here and there to lower my entry cost and still pick up some 5-6% yielders. while the broader portfolio is getting hammered today, the only saving grace is that I’d be down much more had I not shifted to income/dividend producing securities and prefered. Just might have to hold my nose and buy a little more in here
Road, if you are searching for income as “safe” with higher yield than 5-6% you may want to look at FRMEP. This was acquired in an acquisition this year and is a false 7.5% par yield. It was assumed by a bank with Baa1 credit and thus the preferred is a defacto Baa3 IG preferred. I have traded this in the past and someone mass dumped couple thousand of a relatively thinly traded issue and it went below par. I couldnt snag any until getting shares in 25.06-10 range, but will take and hold or trade here. Near par is a very reasonable yield compared to other bank Baa3 if any will sell at that price or lower down the road……
2WR, you are spot on with the UMH-C issue. Just last conference call they stated at least 3-4 different times it was getting redeemed and capital was secured to redeem. If fact they blamed lower results past quarter from the drag of holding excessive cash waiting to redeem them.
Grid – there have been several instances of these quick mass dumps of thinly traded preferreds in the past week or two
I was lucky to add to FRMEP below par today on it’s dump. Others I have been able to add on similar quick intraday dumps include WBS-G, LBRDP, ATLCL
Good job, Mav! I wish I had set some trot lines, but could only react after the fact. Mostly I have been forced to do the opposite. By them on modest dips then catch wide bid/ask spreads and jam market order sells and getting intercepts. I did that with JBK this past week for a quick 70-80 cent churn on some shares. And yesterday I took advantage of that mid day spike and sold some quick flips. Its hard work staying above the Mendoza line this year.
100,000 shares of CoBank’s thinly traded CBKPP were dumped between 2-3pm EST today (otherwise, less than 1000 shares traded all week). Doesn’t look like there was much of an opportunity to jump in though, the price recovered almost instantly on low volume and even increased a bit.
Thanks, Grid – I bet you’re already out on APRDM, aren’t you…. Nice one! I was in there bidding on all series the first day, but not aggressively enough in hopes some former seller might not have seen the notice… It sure wasn’t easy to find the notice so I too thank NewtoThis or whomever for posting, even though I didn’t score… Also it was tough putting in bids on APRDM in particular at first because I wanted to bid far above 5% over the last trade…. Then in the AM both Fidelity and TDA lifted their restrictions.
2WR, I could tell the prices had adjusted premarket since Friday. I went after the 4.2% series because it was biggest float and redemption price was highest. I set $102 for couple hundo in one account and 300 at $104. It got the 300 and then noticed later I got a 55 partial on other lot at $102. Normally I would have sold by now, but I like having “impounded” money now.
Have a lot in them now, keeps me out of trouble, ha.
By the way here is a trick to get above the TD limit if you have them. Set your bid highest it allows over the then current bid. Then just keep changing your own bid ever higher. Its a dummy program so it will then let you walk your own bid up. Have done it several times myself.
Cool! Thanks for the tip…. didn’t even occur to me to try something like that… That’s probably why it was possible to bid higher later as opening got closer….other bids were in by then
Grid, what do you mean by ‘false 7.5% par yield’? Do you know where I can a prospectus for this one?
found the prospectus; it used to be LEVLP, right? Still wondering what you mean by ‘false 7.5% par yield’.
Bur, All I meant was this was issue would not be 7.5% nor would have been issued at 7.5% if FRME had issued it. This is why its still outstanding as from what I can tell FRME doesnt issue preferreds (definitely not public ones) and likely will redeem in 2025.
For such purposes, our merger with or into any other entity, the merger of any other entity with or into us, our conversion into another entity, or the sale of all or substantially all of our property or business, will not be deemed to constitute our liquidation, dissolution, or winding-up.
It is annually rated as a top 15-20 US bank with a Baa1 credit rating which slots preferred Baa3. IG bank preferreds are not trading at 7.5%.
https://www.firstmerchants.com/news/2021/11/10/first-merchants-ranked-top-big-bank-two-years-in-a-row
https://www.firstmerchants.com/news/2022/03/30/s-p-global-market-intelligence-ranks-first-merchants-as-a-top-20-bank-in-2021
Its only a $25 million float, so I dont know if shares are still available today at par “ish” or not.
FRMEP got pounded down temporarily yesterday to $23.22 or at least a market order trade that the “market maker” took advantage of with 795 shares. It’s a great lesson to not put market orders on preferreds or other semi illiquid securities.
Bur, This was as you know the old LEVLP, this was a “oh sh!t” we better raise some capital after covid crisis. There was another one of these that was ironically issued on the very same day by another bank, WSBCP. They went the reset route instead of fixed. And 5 year yield of T Bill was almost non existent then so this 6.75% issue has a very juicy 6.55% adjustment plus 5 yr Tbill add on come 2025 at reset time. This one is worth tracking for a possible personal entry point, and I just toed in a “keep me aware of it” purchase. Come 2025 its likely the office pocket pen protector nerd will be going into the CEOs office and saying “We gotta get rid of this boss”.
I bought a bunch of the WSBCP issue yesterday. It was the lowest it had been in a while. I got about 400 shares of the various Alabama Power preferreds too. Should get at least the accrued dividend on each of those given my entry price. With interest rates heading up I am surprised those were called.
I am looking into Conifer now. If they are intent on calling their notes, and already raising money to do so, then there might be a fairly safe play there. I guess it depends on if they are successful in raising the funds and don’t change their minds as to what to do with the proceeds. To hear people talk about them it is hard to see how they could get a better interest rate than they already have, but I guess they could be extending the date their debt comes due. I will have to look at the financials.
Term, reset, plays involving calls, and deep ocean floor fishing where thinly traded issues dip way down are all I am looking at now.
Grid, thanks for the tip! Yes, certainly an unusual situation. checked it this AM at it’s back to the $25.60 range, so may have missed my entry point. Will keep and eye out to possibly catch on another dip!
I started buying investment grade perpetuals when they hit 5.50%. I knew that I might be trying to catch a falling knife and indeed, I was right about something. I DCA-ed but the wave wouldn’t stop. I then started shorting the low yielders, as much as 1/2 my long holdings. To the downside, two Capital One issues hurt me the most, down maybe 25% or so.
Any profitable short position was flipped into another one. It stemmed the losses and with the bounce this week, I’m not terribly far from break even and only have a few short positions remaining. Yes, the borrow fees added up but far, far less than the loss reduction. LOL, I’ve had to work awfully hard to lose money.
Where were the pre-earnings announcements from Target and Walmart? When, you are significantly off earnings estimates, the companies should have been doing some earnings warnings that they are off track. They are not only hurting the investors they are NOT helping the Federal Reserve properly plan. This is shameful behavior by their CEO’s. The SEC needs to be cautioning companies not to hide what is happening. At 80% cash, I am fine but this is still wrong.
The Federal Reserve is always wrong, in everything they do.
Tim…We all are frozen to, on line, purchases, all our retail clients asking to freeze their rent increases , or no lease renewals ….Georges
Tim,
The markets are down ~3% right now, while it seems to me that only a few of our III securities show relatively small drops (my portfolios are only about 0.5% down today), probably due in part to the fact that the 10-year dropped to 2.91%.
In your opinion, is this a good sign for us (and maybe should start nibbling more of the “juicy” securities) or is it just one particular data point and we will soon continue to see further losses in III securities?
dd–I’ve been nibbling on a regular basis including this morning. I just do 25 or 50 shares each purchase which doesn’t move the needle in the portfolio, but over time buying a few shares–almost daily, it matters. I don’t think 2.91% means much–folks certainly sense economic issues and at near 3% bonds are much more attractive, but in a couple weeks the Fed claims they are going to let the balance sheet start to ‘run off’–that will probably put pressure on things–I believe that starts 6/1.
Been nibbling too on SREA, MGR, CMSD, and BHFAP all below par. Looking for quality over 6%, and trying for debt over preferred but BHFAP is too juicy.
So then the question is how many increases does the market have priced in? If it has over shot then now might be a buying opportunity???
JB I though they had too many priced in already–but honestly who knows for sure. With some IG stuff trading around 20–down from 25 and only 75 basis points worth of hikes thus far it would see that most everything is priced in–but watch the markets make a fool of me.
Thanks,
Hi Tim, SCCF is trading at Etade. Thanks.
Thanks heron