Last week stock investors had another somewhat wild ride as the DJIA traded in a range of 25,244 to 25,818 before finally closing at 25,444. The 10 year treasury traded in a range of 3.14 to 3.21% before closing the week at 3.20%. The 10 year is acting like it wants to close above 3.20% and there is no reason to think that it will drift down too much this week.
Last week we had mixed economic signals–although tending more toward strength. Retail sales for September were weak with a gain of .1% against consensus of plus .6%. The Empire State Manufacturing report was a fair amount above consensus and Industrial Production for September was also fairly strong. The Housing Market Index was up a tic after being weak in recent months. The strongest indicator of the week was the JOLTS report (job openings and labor turnover) which showed a very solid 7.1 million job openings with just 6.2 million job seekers available to fill the positions–this should scream wage inflation, but we haven’t seen it yet. Housing starts remain fairly tepid and mortgage applications continue to fall–as I would expect as interest rates of mortgages rise. Also on Wednesday last week the FOMC minutes for last months meeting were released and struck a hawkish tone as there is discussion of higher rates above the neutral level (whatever one believes this level to be). Lastly Existing Home sales were released on Friday and were weaker than consensus. I don’t think anyone should believe that housing will be overly helpful in keeping the economy afloat–interest rates and in particular crazy high prices are really going to pinch the markets over the winter and as we enter next spring we may be looking at some pretty soft numbers.
For the coming week all eyes are focused on GDP for the 3rd quarter. This number will be released Friday morning and consensus pegs it at a plus 3.3%. The range of ‘guesstimates’ is pretty wide with the low end being at 2.6% with an upper limit of 3.8%–of course a release out of this range will move markets. Beyond this economic release the stock market will be watching earning releases as there is a very earnings calendar this week. Interest rates should remain fairly tame, but there are 10 Fed presidents giving speeches and markets will be somewhat sensitive to the baloney any one of them may spew.
The Fed balance sheet fell by just $1.5 billion last week which is the 2nd week in a row that there has been no (or little) run off. We expect that the run off will in turn show some larger run offs in the weeks ahead adding a little pressure to interest rates.
The new issue offerings last week were fairly sparse with CEF Priority Income Fund offering a new term preferred with a maturity date in 2025 and a coupon of 6.25%–we find no OTC temporary ticker for this issue yet. LNG ship owner Dynagas (NASDAQ:DLNG) offered a fixed to floating preferred with an initial coupon of 8.75% and a floating rate of 3 month Libor plus 5.59% starting in 2023. Both of these coupons seem a bit low to us (every issue is low to us). This new issue is trading with a OTC temporary ticker of DGAGF and is trading at $24.67 at this time.
The average $25 preferred share rose last week to $24.27 and there are now 234 issues trading at $25 or below. This is a pretty typical price pattern after sharp selloffs. 1st comes the sharp selloff and then a week later shares tend to stabilize and move slightly higher as calmer heads prevail and investors way for further news on the economic front.
Aarod and Roger, thanks for letting me know about the changes in the S&P preferred index. It’s very much appreciated.
I’ve been doing preferreds for about 20 years and you are always welcome to contact me on SA, but they made me change my posting name and I am “Early Retirement Advisor” there now. While I have written several articles on Seeking Alpha now ( and may write a few more), my limited commissions from the site will go to my local animal shelter and I certainly don’t write for the money. Thanks again, much appreciated.
Out of curiosity why would SA ask for a name change?
For those that are interested, and I cant remember if I posted, so I will incase I didnt. NuStar has already pegged the next interest payment for NSS at 9.17% at par for January payment. This pretty much means a good chance it is on to April with this one.
http://investor.nustarenergy.com/phoenix.zhtml?c=123440&p=irol-debtfactsheet
If I didn’t already own 5X my usual issue limit I would buy more.
Bob, I am over my limit, also.
So my question is: Do you think Powell puts a hold on reducing the balance sheet when he sees volatility and dips in the stock market and bond market? Or do you just think it relates to the timing of maturities on the books, or other factors unrelated to the markets?
If one finds such a purchase suitable, UMH-B is laying there at 25.80 and kicks out its 50 cent divi next month, so barely above par now with an 8% par, fall 2020 first call date. It has 2 other issues under par but lower yields. I prefer these type of issues to have more “call threat” down the road for better price stability thus this purchase. I consider this a purchase for my “higher risk bucket” though this common stock dog of a company has been around for a long time.
Wow, well that was over quick. I could tell some entity was selling due to a late larger block sell Friday at $25.87. I set high bid at $25.80 this morning and nothing traded for an hour while the other sisters traded and moved up. Then the 500 shares which included my 400 went at bid, ask dropped to $25.80 and then a few minutes later 7000 shares went poof at same price right behind me.
You buying that to hold–or just to capture the dividend?
Tim, I dont know yet. If more quality issues down the road reach a more appealing price point, I would sell for that reason. At this price point it should be fairly stable to hold. The common has been a perpetual hobbled dog of a stock. If I had been holding the common the past 10 years, I would be currently throwing eggs at their property in frustration, lol.
I think the high yield stuff will be on my radar maybe starting in January – data dependent of course–I think I will be sticking with my term preferreds and baby bonds until then–maybe we will see the end of rate rises later in the winter and that is when I want to lock in some high yield.
This morning I took off the UMH-C shares a little under $22.60 with a current yield of about 7.5%. While there could be some more downside potential, the same shares were selling for over $27 a year ago.
It is a little higher risk, but they now have over 100 mobile home parks with about 20,000 total units. When doing tax returns for mobile home parks year ago, I was always amazed at the stability of the income with these rental units.
Kaptain, you and I were conversing about these over the weekend. This was the classic example of no right or wrong answer on which to buy, but which fits one needs better. Your goal tends more towards income stream and protection of that, while mine is more capital protection long term and grab the yield while I can. I did give C serious thought this morning before putting my chips in on snagging the B instead.
Grid, I agree there is no right or wrong answer on this one. Once the B shares are callable, they should hover somewhere around the $25 area because at an 8% coupon they always have a chance of being called. Should be a decent holding or trade and they are right around the 52 week low.
After the selloff on the C shares Friday afternoon, I was comfortable with the 7.5% yield plus a chance of some capital appreciation. Looking back almost exactly a year ago, these shares were selling for $27.55 and today they are almost $5 cheaper. I’m not sure who was buying a year ago, but it was not me!
Overall, maybe I just should have flipped a coin. Heads – B shares. Tails – C shares.
Who knows on interest rates long term, but if they dove tail down the road, you have more of a potential cap gain trade though. B will not provide that opportunity as it moves closer to first call date.
Selling still continues with B. I was a bit too early. Interesting how its dropping and the other two are up. This is an issue and I man up and accept what happens. I dont double down or average down in these issues. I swallow my castor oil like a good boy and accept what happens.
I’m tempted to pick up some B shares now too as I may be able to purchase at $25.70. The volume on the C shares is very heavy so far today at 88k shares.
If you are looking at other investment ideas today, I see that the #1 REIT writer on Seeking Alpha has published not one, not two, but THREE brand new articles today on REITs. All of them are rated a buy.
Its funny how on one of these articles he can do the math, but when it comes to SKT or KIM his calculator refuses to work on his returns, lol.
Grid, about six months ago when a number of REITs were in the dumpster, I casually made a comment on one of the articles that BT must be really down on his REIT picks. The response? Nope, he had bought most of his shares back in 2014 and 2015 when the prices were much lower. LOL.
Kaptain, he literally never loses money….Its brag on an upward blip, and in it for dividends and better deal to buy when its down.
UMH-B appeared to have a controlled block seller too, though it wasnt getting the bounce the other sisters did today.
Speaking of losing money, waited patiently but only snagged 200 more of BANFP at close of $26.02. Got my basis cost down to 26.22 now. Unlike Brad, my calculator shows I am in the red here still. There are only a handful of issues I own I will average down and this is one. But I wont look to be buying a lot more, maybe a few hundo more at $26 or so.
This bank is far superior to NYCB and their preferred has a longer duration and ~ 80 basis points lower. I like the current 6.92% yield…I better since I also liked it at ~ 6.85% lol…
Grid, I will take a look at BANFP later this week and perhaps there is some opportunity there too.
In regards to UMH-C, before today I was in the preferred at about $23.60, so I am down there too and my Monroe calculator always seems to work correctly even on my losing positions. There is no way I can hold about 30-40 positions and never have losses. Today I was glad to average down buying shares in the $22.57 range and may purchase more in the next week. However, I have zero interest in the common stock and there is no reasonable explanation for investors buying the common when the yield on the preferred is at 7.5% with potential for capital appreciation.
Kaptain, that was weird…I got 50 more shares of BANFP giving to me 16 minutes after the market closed. I had no aftermarket trade in. Never had that happen before, but will gladly take them.
Didn’t know he had a rating that was different.
re: “The volume on the C shares is very heavy so far today at 88k shares.”
Would it be attributed to S&P US Pfd Index dropping UMC-C effective today? UMC-C volume spiked (598K) Friday after market closed. One (i.e., I) could speculate a sell-off from funds that follow index and on-going today (cause and effect).
Aarod – I’m pretty sure that would be the reason. Volume was heavy the last two hours on Friday afternoon and there is absolutely no news on the company. Thank you for sharing this information, much appreciated. I hold ARI-C shares and the same thing happened to them on Friday afternoon – down on incredibly heavy volume with no news.
However, events like this often provide buying opportunities.
Aarod, just did some research and you are 100% correct. Printed out a list of the changes and ARI-C was on the list and explains the reason for the drop there too. As of today, I don’t own UBP-H yet, but they were dropped from the index as well and yield close to 7% now. This week my research will focus on the companies that were dropped to see if there are any buying opportunities left at decent prices.
Thanks again for mentioning these changes. It’s nice to have a forum like this were fixed income investors can share thoughts and ideas.
Thank you kaptain but I cannot take credit. I’m actually a novice on pfds. Roger is to be thanked for posting earlier on one of the recent comment threads on this site. I recall spotting it as well in a recent SI post.
FWIW, ARI-C is speculated to be up for call per one/two posts elsewhere (likely in SI as well).
I complete agree that this site rocks! It even has an “III rating” for each respecting pfd, qualified as a rating on the safety of dividend payment. But it helps, at least to me, as a gate and for comparison purposes as Tim obviously knows his stuff.
Hi Greg–yes it will, but if I remember right this is pretty ‘junky’ so one needs to check the financials closely.
Will the CEF Priority Income Fund have 200% coverage?