Monday Morning Kickoff

Right away this morning the DJIA is up about 240 points as we write, so it looks like the stock market will start off with a good move higher.   Interest rates are pretty much flat to lower in yield with the 10 year treasury trading around 3.08%.

The biggest factor this morning in the stock market move is some potential positive moves forward with China trade.  While Treasury Secretary Mnuchin is dealing with the Chinese certainly there are no guarantees that there will be a positive end to these talks.  Until the ink is dry on an agreement we all know that this issue could go south fast sending stocks lower.

This week we have 10 speeches by Fed Presidents—that is about 9 too many as all they ever do is cloud the marketplace with contrasting view points and forecasts that are no better than yours and mine.  Unfortunately these can be market moving talks and thus they are news.

We don’t have any real economic news (except the speeches noted above) until Wednesday of this week.  On Wednesday we have the Mortgage Bankers Mortgage applications report which is looking to be down 2.7%.  Personally from local observations it wouldn’t surprise me to see them down more than this amount.  Sales and re-financings of homes is softening quite a bit in rural Minnesota, but we know that doesn’t translate to the rest of the country, but with rising rates and very high prices for new construction it is a perfect storm for reduced housing activity–thus less mortgage activity ahead.  We will have new home sales released on Wednesday as well and these numbers were strong  last month and expected to soften a bit from the prior level.

We also have the Purchasing Managers Index flash report (PMI) on Wednesday.  This is forecast to be flat month to month.

The FOMC releases minutes on Wednesday and this has the potential to move markets if there are opinions in this report that varies from conventional wisdom.  With the Fed Presidents yakking every day it is hard to believe there would be anything that surprises in this report, but one never knows.

Thursday we have the FHFA House Price release as well as the Existing Home Sales report.  These will not be market moving in any way–too many excuses (reasons) for these being off the mark.

Friday we have the Durable Goods report and this is anticipated to be softening when aircraft are counted, but up nicely ex-transportation.  Like most items this will likely not be market moving.

The Fed balance sheet runoff really picked up steam last week with a run off of $21 billion–a much larger move than recent weeks.  This serves to keep the pressure on interest rates.

The average preferred stock and baby bonds fell by 5 cents last week.  Given the move in the 10 year treasury early last week this should have been expected–in fact we would have guessed a larger move down.  There are 202 issues trading below $25/share.

We had 1 new issue price last week and the B Riley 7.375% notes began to trade on Friday. Given that B Riley has 3 issues already outstanding with coupons of 7.25% to 7.50% there is really nothing new in the issue for us.

10 thoughts on “Monday Morning Kickoff”

  1. SPKEP went down by over 1.8%. Was there any news that caused this drop on up day, or is it just “norma”l volatility for this pref?

    1. The common is down over 58% in the past year, roughly. That’s concerning for sure. With all of the deals going on in the energy patch, I never hear their name being mentioned and I own 9 different ute’s.

      I am holding the SPKEP but I have to say, I’m not comfortable with it. It’s trading very weak and if we’re in for a hot summer, SPKE is going to be in REAL trouble with their margins, just as they were this past Winter. They live and die by the spread of their supply costs versus what they skim off as being the middle man.

      Grid would say, not much meat on the bone, here.

      I may end up ejecting SPKEP from the portfolio in favor of more BAC-B or more RILY bonds.

      1. Hi Grant—I plan to hold for 1 more quarterly announcement as a review of history finds no real change in their fundamentals. As far as I know they are still shopping the company–but whether anything happens is anyones guess.

        As far as margins go they do hedge these when they can plan ahead unlike this past winter which was more than a surprise and unless they are very foolish (could be) they should have this covered.

        If I have to exit with a loss I will be pissed–only because that doesn’t happen often–net of the 1 dividend received I am down a $1/share and it goes ex in a month.

        Honestly I am so tempted to buy more–but am already at about 150% of the norm on my position so am trying to resist.

  2. Today, SPKEP was down by over 1.8%. Is there any news that prompted this drop on an up day.? Or, is it normal volatility for this pref?

    1. HI SPM–no news that I know of, just more of the same. Each time it starts climbing small sellers come in to sell it–really makes a mess of my daily gains/losses as I hold an overweight on it.

      Not sure why these small folks keep selling–lots of nervous nellies I guess. I could to hold–it goes ex in a month.

  3. Tim did you ever get in on LANDP? I saw some trades went below your bid last week.
    I did some historical research on a preferred. And old illiquid one of course with voting rights like the common stock has. Anyhow the interesting thing is this…Have you ever heard of a preferred stock having a split? I have never before. The thing was issued in 1910. It split everytime the common did, I guess to remain proportional in voting rights with the common, as nothing other than that was ever gained from it.

      1. As you would suspect overtime it has been bought out by a holding company. Then it became a subsidiary holding company to another holding company, which in turn became a subsidairy to another holding, then that one became a subsidiary to another holding company which is owned by another holding company. Yes it is buried!

    1. Grid–you caught me out for my once a year golf outing. I own LANDP with a normal position, but would buy more. I need to check it watch it closer and see how low I can get it.

      I think I have heard of a preferred split–but I don’t remember when and what.

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