Monday Morning Kickoff

The ‘dog days of summer’ continue this morning with the DJIA future trading in a very tight point range this morning–yawn–we love boring.

Last week most markets traded in tight ranges all week with the DJIA closing around a dozen points higher than where it opened and the 10 year treasury, while topping 3% for the first time in two months, closed the week at 2.95%.  The biggest news of the week was the employment report on Friday which showed a much smaller than expected job creation number in July of 157,000 new jobs.  Toys R US is blamed for laying off 32,000 workers creating the job shortfall.  As we mentioned last week economic news has a life of about 2 hours and after results are quickly rationalized attentions become focused elsewhere.

This week in economic news we have a very small calendar. On Tuesday we have Consumer Credit.  While normally this isn’t an important number we are interested in it because in June consumers took down massive amounts of debt–around $25 billion which was double the estimate–will the debt binge continue?  On Thursday we have Producer Prices and on Friday we have Consumer Prices being released.  Are various tariffs feeding through the system?  The consensus estimates don’t indicate an issue here–but one should watch.  Also on Friday we have the Federal Budget being released–this is turning into a disaster as economic growth is not creating the revenue stream that was given up with the tax cuts made for corporations–we have a lot to say on this topic and hope we can find some time to delve into it closer this week.

The Fed Balance sheet showed a relatively massive $22 billion in runoff last week.  Certainly this helps the Fed get ready for the next ‘black swan’ event but we question whether raising rates and balance sheet runoff can continue at the current pace–we don’t think so.  Maybe another hike comes off next month, but we would be surprised if the 4th hike ever makes it–economic growth will be much better defined over the next 2-3 months–we shall see.

Last week we had just 1 new income issue announced as Oaktree Capital priced a 6.55% preferred unit issue.  The issue is trading on the OTC Grey Market under ticker OKTGP right now and is trading in the $24.80-$24.85 area.  The ticker for the new 5.625% AT&T baby bond is finally up–TBC– so this issue should trade soon (today?).

The average preferred stock and baby bond fell in price last week by 4 cents and there are 157 issues of $25/share preferred stock trading at $25 or less.

6 thoughts on “Monday Morning Kickoff”

      1. Tim, I bought something today that may only warm your conservative heart, and yet angle me for a possible Thanksgiving dinner invite, lol. I bought 380 shares of GGO-A. Sellers have finally had to accept it will not be going back to upper $40s due to div reset of $2 annually off $40 par (5% par yeild). I got in at $42.05. It will be $2 annually for a little over a year more then reset to 10 year treasury yeild plus 200 basis points with 5% floor and 7% ceiling. It does have a puttable window two times at par next year (year 3) and year 5 if things went to hell in a handbasket. I have had a little too much success in higher yielders lately and been impounding a few dollars in this and KYN-F again (when it went under par briefly) to balance my safety level out a bit.

  1. Per the above, both the private sector and the Federal government continue to pile up huge amounts of debt. I also see that Jamie Dimon, of JP Morgan fame, warns that the 10 yr. Treasury is headed to 5%: “”You better be prepared to deal with rates 5 percent or higher — it’s a higher probability than most people think.”. Is it just me, or does anyone else see anything wrong with this?

    1. Hi Artemisa–I think he is correct–whether that is next month or next year or next decade is the question I have. The amount of debt being incurred is massive–the U.S. will be both Greece (debt wise) and Japan (age wise) in the not distant future unless spending is controlled.

      That being said one can not bury their money in the back yard and survive very well.

      1. I do agree with you, higher rates are absolutely question. The issue is when.

        One thing that surprises me, is the lack of new issues, from Citigroup, Wells Fargo, and JP Morgan. Seems to me, to be a great time to pay down your old higher coupon debt using the cash flow from tax-cuts. Plus at the same time doing new offerings AHEAD of more rate increase so their debt or expenses are cheaper when the rate increases occur.

        This is what Bank Of America seems to doing. Also see that Wells Fargo is retiring an 8% coupon from 2007 but no new offerings. I did expect more financials to follow what Bank Of America is doing – guess another one of my predictions that’s not going to happen.

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