Monday Morning Kickoff

Stock market investors got a wild ride last week with the DJIA trading in a range of 24,900 to 26,540, but closing the week off the lows at 25,340   Interest rates traded in a range of 3.13 to 3.24% and closed the week at 3.14%.   We should see flattish interest rates for this coming week given what we believe will be a absence of data that moves rates much higher or much lower.

Last week we had both the Producer Price Index (PPI)  and the Consumer Price Index (CPI) released and neither would show much inflation with the PPI at  plus .2% and the CPI at plus .1% versus expectations of plus .2%.  Obviously we are not seeing a big bleed through of higher wages or tariffs, but we suspect these are coming in the next 60 days.  As we mentioned last week these numbers helped ease the rise in interest rates from the prior week.  The University of Michigan Consumer Sentiment number was released on Friday and it dropped off just a bit to a preliminary reading of 99 from 100.1 in September.  This is a critical number to us.  Watch the various consumer confidence numbers in the months ahead for a hint to further FED moves.  On Wednesday last week we had a 10 year treasury auction of $23 billion in notes and it had soft demand–the lowest ‘bid to cover’ since February and of course the interest rate was the highest at 3.223% since April, 2011.

For the coming week we have the Retail Sales and the Empire State Manufacturing index being released on Monday,  Industrial Production, Housing Market Index and the JOLTS (job opening and labor turnover) report on Tuesday.  Housing Starts on Wednesday and Leading Indicators on Thursday and lastly the Existing Home Sales on Friday.  Up until 2 weeks ago none of this data was held to be meaningful–maybe it is now time to start paying attention to the information.

The Fed Balance sheet rose by $2 billion last week after falling $18 billion the week before.   Maybe the FED was a tad spooked by the markets recently and held off on run-off—or maybe it was just the luck of the draw as every few weeks there is little to no run off.  Who knows for sure–and we will never know.

We had little new issue action last week with the exception of the singular issuance of baby bonds by OFS Capital (NASDAQ:OFS).  The issue came with a coupon of 6.50% and a maturity date in 2025.  The issue should trade sometime this week under the ticker of OFSSB.

The average price of a $25 preferred fell a bit last week to trade at $24.17 which is 8 cents lower than the previous week as interest rates stabilized.  We now have 244 issues trading under $25 which is 9 issues more than the week before.

NOTE–REIT DDR Corp is now Site Centers and the ticker has changed effective Friday to SITC.

19 thoughts on “Monday Morning Kickoff”

  1. looks like many pfds still selling off when I look at the $25 Preferred Stock Sorted by Gain/Loss list..

    1. Hi Bea–I have noticed that most of the selling now is either some of the very low volume-high quality issues–and the junky issues like Maiden Holdings and the shippers. BUT so far today nothing down more than a buck–some down 2-3%, but most of the action looks like plus and minus 1%.

        1. Inspbudget–I believe it is likely we stabilize in here and some issues sold off hard will recoup 50% of their losses. Then we await the next catalyst for movement in rates higher–maybe that is 3 weeks away with the next employment and wage report comes in early November.

          On the other hand I am a bit nervous about treasury auctions–they have been soft lately. We get the weekly announcement on Thursday for next week–most shorter term paper out to 7 year notes. We won’t have new 10 year and 30 year auctions until the last of the month or 1st week of November.

          1. I havent seen any major deals worth trading into. Though I did manage to get almost 300 shares of BANFP through partial fills throughout day at $26.35. This price is largely where it was at in 2005 when 10 year was well over 4%. Even in depths of financial crisis where large majority of bank trust preferreds and preferreds went into $4-$8 range, BANFP stay pretty strong never dropping below $17. I kind of like this bank and being past call for many years and a 2034 maturity keeps its price more stable. Not an issue I can endorse for others to buy though as the meaty call loss risk is still there, though I personally discount it because of the fact small banks such as this threatened lawsuit with Feds if their trust preferreds were disallowed for Tier 1 and not exempted from new law. They also always clearly mention in their quarterly filings it is not subject to redemption from new Basil 3 regs.

            1. A short time back, I paid a premium for a callable RBS preferred. The reasoning was “its been callable for so long, what’s the chance they’ll call it now”. I was wrong. Needless to say, I don’t do that any more.

              1. That is why I just mention what I buy and dont recomend people to follow. I have tactifully navigated all sorts of above par past call issues through the years and will continue until I can buy what I am willing to buy under par. I saw those RBS preferreds and others of that ilk but never bought, because I knew these were issues they would want to redeem when they were financially sound enough to do so.
                These trust preferred from smaller banks are a different beast. There are specific reasons other than “they have been outstanding a long time”. If one cannot find logical specific reasons, it is best to avoid.
                As I am sure if I ever did get stung, it would put me in same frame of mind you have.

              2. Grid, I still own OSBCP from the last time we discussed this stock. I believe it falls under a similar situation as BANFP ( small regional bank, with low capitalization ) ? I recall that they can still treat their preferred issues as Tier 1 capital, right?

                OSBCP has been strong during this past month’s carnage. I have no intention of selling.

              3. Yes, Inspbudget, same exact principal. Most small bank trust preferreds were privately issued to the locals and were never sent to market. Only 3 that I am largely aware of. OSBCP pricing is always incredibly stable isnt it.

            2. Im posting this not as a reco, but as an example of the ongoing process buying illiquids that are jumpy… BANFP which some days doesnt trade at all, has been liquid (on a relative basis up to 5900 shares as I type). It bounced between $26.50 and $26.75 today but buyers were exhausted. I set a low ball bid at $26.16 today and it was finally left standing as first man up and hit for 300 shares. So I am buying “underwater” right now having got a few at 26.70, 26.35, and now 26.16. Last trade was $26.11. One of two things will happen (assuming bond rates dont rise), the selling will lock up here in a few days and then price will eventually bounce to $27 before exD or I am front running into a call where some in the know are getting out. It has never been the latter, before as I have hit this issue like this several times before, but that doesnt mean it wont happen this time…I enjoy these trades as the price is bouncing from buy/sell imbalance not a company problem issue (common is up today). We will see how it plays out.
              , and if I get smacked I will own it! Im comfortable holding this issue so more drops wont bother me as I have no idea if selling pressure is over yet. When buying illiquids pay no head to the ask as it is almost always bogus or for the impatient.

              1. Yes, Mr. Lucky its a relative young pup being only a teenager still, lol.. This thing had huge sell pressure around with 12k plus traded. Its 90 day average isnt 1000 shares. Fun stuff…Will enjoy seeing what it does tomorrow. I will now sit and wont chase. I am fine holding, but admittedly wont enjoy a call welt on side of my head though.

  2. I may be a minority, but I want the volatility. In the first 11 days of October I purchased 18 different PFDs and BBs in 29 separate transactions. Not to mention CEFs and some other things.

    Busiest I’ve been in a long time.

    Do your tax loss harvesting now, so you’ll have cash on hand for the usual end of year selloff.

    1. No taxes losses at all here, Bob. I do have a CD maturing in Dec. Put that cash in timeout with 6 mon CD so it will be ready to go to work! I dont volitility either, but for the greater portion of my money, I want to be comfortable owning it if it sagged more, like my BANFP purchase. But if a spike occurs I will look to exploit as usual.

    1. Nomad, I feel better about ALLY-A viability for near term once another online member from another forum used his sluething skills to confirm ALLY-A is a Basel 3 exempt trust preferred so ALLY can continue using it for Tier 1. We get a couple more Libor bumps and the party may be over though. This is a very iffy one for me concerning a call. But coming back in for umpteenth at 25.88 recently it will survive until February minimum now that the 30 day call window is closed for this payment period, so I wont lose money here.

  3. Hard to see preferreds falling much farther without material positive news on economy. Clean-up on the China trade aisle would/could be a short term spark for further price volatility. Maybe year-end selling? I don’t have any losses so that’s not happening. Hoping to get better prices near new year and fill in part of my fixed income side and hang on to what happens. I see no reason to go long maturity here.

    1. Hi SpanglerDavis–yes we may well have a pause while we await further economic news of importance. Too soon to move out in maturities here–or a person could slowly ‘leg in’–but better prices will likely be ahead.

  4. I bought some MCX today. You gotta think this is pinned to par. Redeemed in 2 years. Merger taking place…

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