Monday Morning Kickoff

The S&P500 took a bit of a spanking last week closing the week at 3811 after closing the previous week at 3907–a loss of around 2.5%. In spite of this loss the index is only 3% or so from an all time high closing high.

The 10 year treasury yield sprinted as high as 1.61% on Thursday before setting back nicely to close Friday at 1.46%. Inflation expectations and poorly received treasury note auctions contributed to weak bond prices. Higher rates contribute to higher rates – a vicious circle as potential buyer back away from U.S. Debt believing they may take an instance loss in their capital. With good fortune rates will stabilize for the coming week.

The Federal Reserve balance sheet grew by $33 billion last week–relative calm before the inevitable storm once the new $1.9 trillion stimulus package is passed.

The average $25 preferred stock and baby bond price followed the same trend last week as in the last few previous week. The average issue fell in value by 10 cent, while investment grade issues fell by 20 cents and junkier mREIT preferreds were even. So once again junk issues outperform quality.

Last week we had 3 new income issue come to market.

Telephone and Data Systems (TDS) brought a new 6.625% preferred to market. The issue is trading on the OTC grey market under ticker TDSUP and closed last week at $24.85.

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BDC Gladstone Investment (GAIN) sold a new baby bond with a very meager coupon of 5%–with a maturity date in 2026 it is obvious that short dated paper is very prized. The issue is not yet trading as far as I can tell.

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Texas Capital Bancshares (TCBI) has sold a new perpetual preferred stock with a coupon of 5.75%. This issue is trading under OTC grey market ticker TCBLL and closed on Friday at $24.58.

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19 thoughts on “Monday Morning Kickoff”

  1. My fear and anxiety concerning higher interest rates turned out to be well founded. However, my execution was pitiful. This year, I have done three trades in this preferred/baby bond area — on issue, I bought NEWTZ, RCC, and FRC-PL. I sold all three too early, and left a ton of money on the table on the baby bonds. I blame Gridbird for my bad habits.

    1. hey I never owned 2 of those. Only reason why I own RCC is because 2WR got a restraining order put on him by their investor relations from harrassing them over prospectus. I still own RCC.

      1. FYI, so far the handcuffs fit comfortably but they do make bathroom time problematical…..

      2. Is that RCA or RCC?
        I only ask because I had an indirect part in 2WR’s harassment (kind of like Fred McMurray in the Caine Mutiny). But that was about RCA, not RCC.

        1. Oops, Nh, you are right its RCA, or at least I meant it for me anyways. I assume AH didnt mistype, so I didnt own that one either. I wasnt at home today and was ADD bored on my phone responding from memory which at times isnt the best anymore.

  2. If you own any Texas Utilities you may want to look at them. The freeze 2 weeks ago has started to have financial repercussions. The largest electri coop in texas, whose bonds were rated A+ just filed chap 11 due to a 2B power bill for just 1 week during the freeze. 2020’s total bill was 800M or so.

    Its going to get messy as I think there are other whoa re going to file too. Under ERCOT (the grid operator) rules If one company doesnt pay the default gets spread over all the remaining companies.

    https://www.kxan.com/investigations/texas-electric-utility-hit-with-2-1b-ercot-bill-files-bankruptcy/

    1. Agree- SPKE (Houston) dropped about 21%, but today is up over 4%- go figure. Maybe they haven’t gotten the bill yet (ie: investors)
      SPKEP is hanging in there, very well.

      1. i used to own SPKEP. wouldnt touch it right now at pretty much any price. I think the pain is just starting

    2. A lot of people hurting. Who’s benefiting? In particular, to what entity/ies would that $2B have been paid (had the coop not filed)?

  3. I tried placing this in reader alerts but got reply that comments were closed?
    OTRKP taking a hit–parent company announced loss of their largest client this morning. I had been increasingly uncomfortable with the company, so had reduced holdings but still have some. Undecided if I will dump and move on or see if they rebound this week.

    1. Yes they lost Aetna (CVS) .. they have 86m cash on the books and the pfd divs are reserved thru 2022 but this bears watching. Pfds seem to have stabilized.. I have the common and pfd on watch.. they do a lot of good for the people they serve.. still have Cigna, Centene and the VA as clients so I would imagine there is a lot of potential but rev will take a big hit losing Aetna in August. Bea

  4. OTRKP just blew up, down ~ 15% to 21.50. They pre-announced their quarterly results and said they are losing their largest customer.

    1. Tex:

      The 9.5% OTRKP selling off 15% this morning once again validates the most sacred investing adage:

      “More people have been killed reaching for yield than they have from the barrel of a gun.”

      “Ontrak cuts 2021 guidance after the loss of largest customer”

      “After the preannouncement of its Q4 2020 earnings, Ontrak (OTRK -45.6%) has lost more than 40% in the morning hours with the announcement of the loss of its largest customer with effect from June 26, 2021.”

      “After a long process with our largest customer where we believed we were working towards an extended and expanded contract, we were notified after market close on February 26, 2021 that our participation status with this customer will be terminated” commented CEO Terren Peizer.”

  5. Hopefully TimH that is a ways off. Too big a move in T bills would upset the markets.

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