Monday Morning Kickoff

The DJIA traded in a range of about 25,850 to 26,211 last week which is a wider range than we have seen for a few weeks, but generally is still pretty quiet.  The 10 year treasury traded in a ranger of 2.93% to 3% and at this moment is trading right at 3%.

Last week we had Consumer Credit released and it grew by $17 billion in July which is a sizable jump and reflects the level of consumer confidence we have observed for many months now.  Also last week we had the Produce Price Index released at a -.1% and the Consumer Price Index came in right at consensus at .2% higher.

For the coming week we have bunches of housing numbers being released.  Home Builder Index is released on Tuesday, Housing Starts and Building Permits are released on Wednesday and Existing Home Sales are released on Thursday.  These number have been running weak in the last few months and we expect that to continue.  Leading Economic Indicators will be released on Thursday and while the number could be important there are none of the economic releases this week that anyone will pay too much attention to as far as interest rates and equity indexes are concerned.

Economically speaking the new tariffs to be announced on China by the U.S. are the biggest news and could eventually cause havoc in the markets–but predicting major market events based on tariffs has proven fairly futile thus far.  All we can do is wait and see.

The Fed Balance Sheet grew last week by a couple of Billion $, but overall continues on a downward trend.

For last week we had quite a number of new income issues announced.  Duke Energy (NYSE:DUK) announced a 5.625% baby bond.  REIT American Homes 4 Rent (NYSE:AMH) sold a new preferred stock with a coupon of 6.25%.  Container shipping company Seaspan (NYSE:SSW) sold a new 8% fixed to floating rate preferred.  mREIT Chimera Investment (NYSE:CIM) announced a 7.75% fixed to floating rate preferred.  Lastly AllianzGI Convertible & Income Fund (NASDAQ:NCV) announced a very high quality fixed rate preferred with a coupon of 5.625%.

We personally have no long term interest in the issues announced last week–BUT we could see a potential ‘flip’ of the Chimera issue depending on where one can buy it in the OTC Grey market.  The issue is trading under ticker CIMPP and closed at 24.85 on Friday.  We could see a 40-50 cent flip over the next 30 days if one can buy right in this price area.

We have 170 $25 preferred stocks trading at $25 or lower and the average price of a preferred stock fell by a full dime last week.  This is the largest drop we have seen for quite a while and mirrors the rise in interest rates last week.  As we have written about over the years in an orderly market–kind of Goldilocks when rates are rising slowly over time you can lose 1-2% in share price and not really notice.  As share prices fall a few pennies here and there another dividend is collected–at the end of the quarter you end up ‘even’ etc.  We like orderly price adjustments and interest rate transitions,

11 thoughts on “Monday Morning Kickoff”

  1. Hi Tim,

    JPM with a new Non-Cumulative Preferred Stock, Series DD today. It will be around 5.75%

    1. what makes you think around 5.75% ? The bottom of the barrel rate for investment grade seems to be 5.5% with many at 5.625%. I’d guess 5.625%

      1. Hi SteveA

        To me it will be between 5.75% and 5.85%. Let’s see.
        It is an intriguing issue though.

        1. Eugene, would you know the temp symbol? Would be nice to get it at or below par, I can live with the 5.6% rate.

          1. Inspbudget,

            I don’t know yet the OTC symbol. We will know probably later today or tomorrow.

  2. Seaspan has a new floater SSWPP temp ticker trading ~$24.80. If it trades to parity with the D series, it could be a quick flip. I will only own their bonds longer tern (SSWN currently) because of – well just because.

  3. Interest rates trending up today..10yr 3.03 at 11 EST.. no real news, I guess just strong economy finally putting pressure here.. will be interesting to see if it continues..massive short interest in the 10yr.. Gundlach saying it is setting up for a short squeeze to maybe 2.25, we’ll see, w all the borrowing and FED bal sheet runoff continuing, doesn’t seem likely to me..

    1. Hi Bea–I was watching the same thing. As you say it is the strong economy and I believe the huge supply (with runoff) which is near 100 billion a month in total is starting to bite a bit. We will see if it remains above 3% this time.

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