Monday Morning Kickoff

Well we are in a new month and I really look forward to seeing what kind of government silliness unfolds this week. Friday we have the employment report–the big news for the week–will we see some improvement?? Markets say we will see nice improvement from last month–BUT weekly new claims say otherwise. Forecasts are for 1.36 million new jobs added–after 4.8 million added in June. Unemployment is forecast to fall to 10.7% from 11.1% the month before, but some forecast are much more negative instead calling for a stall out in employment. We shall see–and will it even matter to markets that are floating continually on liquidity.

Last week the S&P500 traded in a range 3214 to 3272 before closing the week near the high at 3271–up almost 2% on the week.

The 10 year treasury traded in a range of .528% to a high of .609% closing the week near the low at .536%.

Last week the Federal Reserve balance sheet fell by $15 billion. It appears that the huge U.S. savings rate (near 20% now as liquidity floods the system) is bailing out the Fed – for now. The current savings rate reminds me of the Japanese consumer savings rate which has provided ready funds for buying their debt for years.

The average $25/share preferred stock and baby bond last week rose by 21 cents–just shy of 1%. mREITs were strong and were up about 1%. Investment grade issues were up 1% as were the shipping issues. The losing segment was lodging REITS off about 1/2% as the Ashford Hospitality (AHT) issues got hammered

Last week we had 1 new issue come to market as banker Truist Financial priced a new issue of non-cumulative preferred at a coupon of 4.75%.

The issue which is trading under OTC temporary ticker TSTFL closed last week at $25.20.

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43 thoughts on “Monday Morning Kickoff”

  1. Hello everybody,

    I have been a subscriber for a while and I appreciate your opinion.
    If you have time could you please explain to me why MBNKP is trading at such low levels.
    Medallion Bank and Medallion Financial Corp came up with better earnings in Q2 than in Q1. The preferred has an announced dividend, but someone keeps selling there. I have no explanation…
    At these prices, the YTC is over 35%. Where would they get that return from anything else they could do?

    1. Nikola, Just speaking in generalities. I owned this around IPO date and had some nice fun dollar type flips, but have been gone since January, so not presently following…. Earnings for a bank is like having a couple hairs on top of your head and saying your not bald…Its a small part of the story.
      The parent has a 9% subordinated note that matures next year, and it isnt even trading at par. Medallion the bank tried to issue a preferred about 6 months prior to MBNKP being IPO’d and they had to pull the offer as it wasnt going to be received. They deal with a lot of junky, very junky poor credit rating customers. That is their objective. Recessions tend to be stressful with people and entities of this type of credit profile. I am not suggesting they wont continue paying but this is a higher risk. And remember earnings can hide “loan deferrals” given to people or companies that maybe can or cannot ever repay the deferral. My personal opinion is if you invest here consider it for the high risk bucket, not the “need money to buy food to eat” bucket.

      1. More briefly, the company is a dog. Unless you want something you’ll need to follow like a 2-year old it’s not a good place for your money.

  2. Prospect Capital (NASDAQ:PSEC) starts a continuous preferred stock offering of up to 40M shares with a $1B aggregate liquidation preference.
    Each share of preferred stock will have an offering price of $25 per share.
    The preferred stock will have a stated annual dividend rate of 5.50%, paid monthly, and rank senior to PSEC’s common stock.
    Expects to use proceeds to maintain and enhance balance sheet liquidity, including repayment of debt under its credit facility, if any, investments in high quality short-term debt instruments, or a combination thereof, and to make long-term investments in accordance with its investment objective.
    https://seekingalpha.com/news/3599358-prospect-capital-launches-1b-5_5-perpetual-preferred-stock-offering

  3. JCAP being acquired by NexPoint RE. It looks like a private firm; not sure if preferred gets redeemed

    1. Thanks, Fred – been .0001’d twice trying to buy into this and I’m not about to chase it higher, especially when I see where NREF-A trades…. Granted different NexPoint but not knowing much of anything about the NexPoint family, that’ll be my excuse this time for not being more aggressive….I’ve got a million of ’em… excuses that is…

      1. 2WR, You like this cerebral oddity stuff, so I will share it with you…Fitch rates NYCB-U one notch below company IDR/VR rating being its subordinated debt, so that is BBB-. One usually associates a preferred as a notch below subordinated. Fitch doesnt they slot NYCB-A at 5 notches below ratings. Moodys and S&P dont penalize for non cumulative but Fitch does…. And yet the QDI issue trades well above par while the convoluted debt issue always lags well below par with higher yield. People dont want that discounted issuance phantom tax issue to mess with.

        SUBORDINATED DEBT AND PREFERRED STOCK
        NYCB’s subordinated debt rating is notched one level below its Viability Rating (VR) for loss severity, while preferred stock is rated five notches lower than the VR, in accordance with Fitch’s ‘Bank Rating Criteria.’ The preferred stock rating includes two notches for loss severity given the securities’ deep subordination in the capital structure, and three notches for non-performance given that the coupon of the securities is non-cumulative and fully discretionary.
        HOLDING COMPANY
        NYCB’s IDR and VR are equalized with those of the operating bank, reflecting Fitch’s view that there is a very close correlation between holding company and subsidiary default probabilities.

        1. Thanks for the idea, Grid, but right now I feel pretty full up on bank esoterica and a few are beating me up pretty good… However, since you brought one up, how about one I know you’ve been in before, INBKL. Right now it’s trading at 22.80 last. Historically I’ve always compared this 6% F/F subordinated note due 9/30/26 to AXO 6.25% Subordinated note due 2/28/26 now trading at 25.48 last. Credit wise, I haven’t crunched numbers lately, usually I’ve thought the two were comparable and given they came out at about the same time, the market seemed to think so too….. Right now, it looks to me as though Mr. Market is severely penalizing INBKL for its F/F characteristic but also forgetting that it has a floor of 4.85%. Given it begins to float on 9/30/21, that means you can actually calculate a worst case average coupon for INBKL and, therefore, a worst case YTM….. That average coupon right now is 5.043%. So if you bot INBKL, you get a YTM of 6.90% I think. Compare that to AXO’s YTC of 4.99% and 6.08% YTM and something’s out of whack and I’m pretty sure it’s that INBKL is too cheap. Heck 6.90% YTM is in BDC territory comparably, with SAK @ 6.59%YTC and 6.96% YTM. So how’s that for cerebral oddity stuff?

          1. Ha, no I wasnt recomending issue at all. We kinda fish in different ponds. I was just wanting to show u some unusual academia as you just dont see 5 notch differential between subordinated debt and preferred sister…Im belly full of bank/financials myself. The preferred market is about 75% bank/financials. Im at 14.8% and wont ever reach 15%!

            1. Grid – You’d never want to fish in my pond. There’s never very many fish and always too much water..

          2. 2WR, To be honest I dunno. I made a good flip on it and its sister during March comeback. But, I have not studied it since, and Im not overly trustworthy of banks in general and these tinier internet type banks. But, its just emotions not facts. NYCB is no Bank of Amazon either, but it has a history and a unique banking sector. Of course, studying bank financials is a faux science anyways as the rudimentary stuff and balance sheet info doesnt scratch the surface of what is needed. Its way out of my league. You dont find it often where the trust debt has drifted down on pace with common. And BAC and JPM common are down twice as much YTD as NYCB is. The formers are about 30% down and latter under 15%. Plus NYCB-U is now roached out, its float is not with ear shout of its IPO amount as a good chunk were tendered long ago.
            Too much talking about banks, I am done with them…Until I decide to sell any of them! 🙂

            1. Gridbird, I am very curious – and have difficulties calculating it myself – what is OID amount on NYCB-U shares. I wonder if you can share that number since you hold those shares. Thanks.

        2. It lags because paying par for it is overpaying… It was issued at like 66 and the preferred was issued at 100. They may not like the phantom income, but they really don’t want to pay over the sticker price, either…

  4. PNC Financial Services Group announced they are calling all of their 5.375% noncumulative perpetual Q-series preferred stock. Redemption date is Sept 1, 2020. I got the redemption notice from my broker Friday afternoon. This was a bit surprising since I considered PNC-Q a sock drawer holding. My guess is they’re going to issue a new lower coupon preferred to take its place.

    1. RE: PNC-Q

      Redemption leaves only the P as exchange traded, for those who enjoy a 1.6% YTC.

      The 3 institutional issues, Q, R &S, provide better yields at present prices.

  5. BEN has completed acquisition of LM. LMHB is now a BEN credit. Briefly traded under $25 this morning.

        1. Ken, it can go a few ways depending on course of action. I have personally viewed 2 with a variance of one. 1) It gets delisted and jettisoned to the bond market, ala, IEH and PFX…There pricing will not be as transparent though you can track it on FINRA. My account updates closing price only… 2) More frequently after a couple days of eventually “going dark” it reappears on OTC with a new ticker..Ala, LTSA (used to be LTS-A). And one occasion I had when 5/3 Bank acquired my preferred, it went untradeable for over a month. Then after it went exD, it reappeared on OTC with new ticker…Then eventually it received yet another ticker and being put back on the exchange under present bank name.

            1. Ken, if the company that is acquiring is of equal quality or better, ultimately its pricing returns. Some institutions are not allowed to hold delisted issues so it can cause price depression. It almost always is a buying opportunity on the news if the above situation is happening. I havent looked at this situation specifically to know credit qualities of each.

              1. BEN has a higher credit rating than LM did.
                im going to put the prefereds on my watch list to see if it gets depressed a few more days

        2. One thing I’ve noticed is that de-listed shares are harder to price for retail customers..the bid/ask will show up as 0.00 on most online trading platforms, making it hard to determine what the actual spreads are.

        3. Initially, you will see the issue name, no ticker symbol, and the last price at which the issue traded before delisting. Then, well see GB below. Most will bob back up.

        1. Its hard to tell…PFF held onto LTS-A for several months after it was delisted and then just dumped millions way below $10 a couple weeks ago. All while they could have tendered per prospectus at $25. Instead they kill shareholders dumping below $10. This is why I dont buy funds. Very inefficient, lazy fund managers, totally unconcerned about peoples money.

          1. Grid, on an unrelated issue, FPI-B came down quite a bit today. I am grateful that JCAP, a fake storage Public Storage Wanabee got acquired. I plowed most of the proceeds to your FPI-B. Seems that no bad news on the common, Schwab considered it a B, paying some dividends to the common, FIDO “insufficient analysts”. Bought a few more of shares of HFRO-A. Sold few shares of PFZ replaced with BRK/B in IRA account. Fido says the acquirer of JCAP is ready to pay $17.30 (last Friday even with premium). 16 minute before the market close, it is trading below. Two of IRA accounts still have unfilled JCAP, changed to $17.30 good till cancelled. Thanks Grid.

            1. Hey John, Funny you mentioned FPI-B, I almost put a bid on it today, but didnt for whatever reason, I dont know. I have been out of that issue for several months. Rode it up on a couple bucks and flipped it. I still watch it though.
              Been doing some sells and rebuys plays lately. For example sold off my BGEPF at around $95 late last week and reentered today late at $92.70. Some of my good flips arent providing reentry points to repurchase so I keep pushing my outer boundaries of safety and hoping to keep getting away with it.
              Bought a bunch of NYCB-U Friday and finished up this morning buying in tight $43.75-$43.85 range. I see it sank to $43.58 today at close. Not flipping that tomm at open, lol…Went back to an personal red head step child I have beat on alot, SCE-L buying Friday and today at $23-$23.03 range. It apparently closed at $23.29 today. I got an eye on a more lame safer play tomm, because I cant keep stretching.

              1. Grid, thanks for more names. These issues, although not SWAN per se, like many of your picks seem safer than the baby bonds issued by COWN (I have some position on both of their baby bonds). PW-A, and your SWAN PPX are all good. These days with Rida got his new partner finding the Best of Tim McPartland’s TREASURE, AATRL bargains are gone. I just noticed Morwa’s money destruction machine, XAN-C has quietly discontinued its dividends (skipped) for both the common and the once upon a time, “juicy” XAN-C.

                1. John, I just sold out yet again on PW-A and took a quick run basically collecting another divi in a few short week run. They did just declare next dividend, a few days ago, but I sold worried about this comment…
                  Mr. Lesser concluded, “Second quarter 2020 FFO was in line with the guidance provided in our investor presentation. We are optimistic that we can outperform the guidance for our run-rate FFO guidance going forward. We have a significant acquisition pipeline that is in various stages of negotiations and are working on a capital plan that is intended to create significant shareholder value.
                  This could mean redeeming that preferred. Its only 3.5 million but its way past call. They could be looking at issuing something to redeem this and lower their capital cost. They are going ape crazy on this weed stuff. The common has sky rocketed but its from the generous terms they are getting from the Pot Heads….Maybe too good… I will step back and watch and see what the new capital plan will be.

                  1. Grid, please keep me in the Loop when you uncover any new info about PW-A. I own a moderate amount, and would be very interested to know what is in their plans.

                    Thank you !

                    IB

                2. A couple of points about Exantas preferred C shares…they’re cumulative so the skipped dividends must get paid back if and when the regular dividends are reinstated or the shares are redeemed. XAN-C also jumped over 30% yesterday on news that Exantas has secured almost $400M in new financing, before closing up 18%. The company reports earnings this week, so there should be more news /volatility forthcoming.

          2. One can make a good buck just following PFF and watching for their self-inflicted buys and sells.

            If one wants to go the fund route much better to used CEFs. Just buy at the right time, when preferred are under pressure and the discounts to NAV are wide. FFC in mid-March was a great buy. Not so much now.

            1. Wow, FFC is a poster child for what not to buy.
              high leverage, middle of the pack fees, and initially sold at a 1.12 discount to NAV at issuance and is now down $5 bucks from the original NAV in 2003, when it should be stuck to the original NAV like glue in a falling interest rate environment, and you have securities issued at 25 that are trading at 26.50-28 dollar.
              Talk about throwing money away.

              I could design a better fund in my sleep with expenses of .45-.50% using trading algorithms to get the best after tax income stream.
              I stumbled across this SEC filing of a proposed fund that went nowhere.
              https://www.sec.gov/Archives/edgar/data/1793882/000119312519295257/d833306dn2.htm
              You would think it would be an easy sell, since the current income offerings don’t maximize after tax returns. Their tax guy even did a video about it.
              https://www.cohenandsteers.com/topics/tax-efficiency?creative=445649156786&keyword=%2Bcohen%20%2Bsteers%20%2Bpreferred&matchtype=b&network=g&device=c&gclid=EAIaIQobChMIlbXcubiB6wIV0MDACh1Fdww2EAAYASABEgKi-PD_BwE

              In short…
              “Where are all the customer’s yachts?”….

        2. LMHB has traded over 250k shared in the first 30 minutes today so i think PFF is selling .
          ill wait til tomorrow so see if the same thing happens.

          1. well, we will find out tomorrow when they post their updated holdings report.
            You would think the thing would fall farther than it did if they are flooding the market with all those bonds.

  6. “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” Benjamin Graham

    There’s a whole lot of voting going on out there. There are some pockets of value out there, but it’s much harder to find and requires patience.

    1. Indeed and I agree with Ben Graham. It is an excellent reminder. But, one that may need to be placed into perspective. Has society and the stock market “voting” the same way it did in the past?

      Do deficits matter?
      Does spending matter?
      Does trade matter?
      Are our companies too big to fail?
      Does unemployment matter?
      Does income discrepancy matter where middle class shrinks matter?

      You can argue that it will adjust itself eventually but to do that, you need to explain why it just continues to get worse over the last 30-40 years.

      1. Fear and greed are eternal motivators. They don’t change, although the circumstances creating those motivations certainly do. The only change is in the volume and speed of information… a constant barrage of the latest data through multiple media formats in moments and not days/weeks/quarters.

  7. Just another morning with the futures going crazy high before the market opens today.

    This goes beyond the market being foolish or immature. Sorry for all of you who feel that Wall Street only cares about finances or earnings. I do not buy this at all.

    There are just as many reactions to biased agenda’s on Wall Street, as there is in the rest of our society, Amazing how things change. Just a few months ago, trade with China was a huge concern on Wall Street. Now that is completely gone.

    That is not about economics and growth. It is about non-economic matters. Nor do I buy this is about an army of “Robinhood” traders overwhelming the institutional traders.

    It is what it is. Each of us will make our own determinations as to what the heck is going on. It sure isn’t about economic facts on the ground.

    Decide for yourselves what it is.

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