Monday Morning Kickoff

Active stock market trading continued last week with the DJIA moving in the range of 24,122 to 25,578–a 1,400 point range. The index closed at a level of 25,270. The 10 year treasury traded in a relatively wide range as well–between 3.09% and 3.22% closing the week right near the high at 3.21%. The previous week had closed at 3.08% so we were up 13 basis points on the week.

Economically speaking we had mentioned on last weeks “Monday Morning Kickoff” that Consumer Confidence, the ADP Employment Report and the Employment Situation Report on Friday would be the telling data for the week and in our opinion they will likely forecast the next 60-90 days pretty good.  Consumer confidence remained sky high in spite of the tumbling equity markets.  The 137.9 reading was above consensus and above the previous month.  The ADP jobs report came in at 227,000 jobs added, which for once, forecast correctly the added 250,000 according to the ‘official’ employment situation report which was released on Friday.  Importantly, wages moved up by 3.1% year over year–a relatively strong number.

For the coming week we have the Purchasing Manager Index released today plus the Institute of Supply Management Non Manufacturing Index.  These are likely not news and are neutral to markets.  On Tuesday we have the JOLTS (job openings and turnover) report and this has been running ‘hot’ with over 7 million jobs open–important to us and our expectation of eventual higher wage inflation.  Wednesday gives us Consumer Credit for September–important to us as we like to watch ‘all things consumer’, but all in all not important to markets now.  Also on Wednesday the FOMC meeting for November starts and there will be no change in interest rates announced on Thursday when the meeting ends (in our opinion).  The balance of the week has minor reports.

Tuesday is a 10 year note auction and these have been somewhat weak lately with reduced demand and this is of interest to us as we watch to see if the 10 year treasury will blast past 3.2%.  Additionally there is a 30 year bond auction on Wednesday.

Also we would be remiss if we didn’t mention the election on Tuesday–we make no predictions on the results, but our assumption is is the Democrats take the house and Republicans hold the Senate–what this means to the markets is anyones guess.

The Fed Balance sheet saw a run off of $34 billion last week–we suspected a large number was coming as we had 3 weeks of almost no reduction in assets.  They remain in the runoff mode of $40-50 billion a month.

We had 2 new income issues announced last week.  Hartford Financial (NYSE:HIG) announced a non cumulative preferred issues with a 6% coupon which is trading now OTC Grey Market under HIGJL and is at $25.15.  BDC Gladstone Capital announced a baby bond with a 6.125% coupon–this new issue will pay quarterly interest versus the more typical monthly dividends that most Gladstone family issues pay on ‘term’ preferreds.  This will trade under GLADD when it begins to trade in a week or so.  We have an interest in this meager coupon because it has a short maturity in 2023.

The average price of a $25 preferred stock remained exactly level week over week at $24.20.  The number of issues trading at $25 or below climbed to 250 issues last week, which was a jump of 16 issues.

7 thoughts on “Monday Morning Kickoff”

  1. NSS is already my largest individual (non fund) holding. Just as with Dom Perignon, one has to know when one’s limit has been reached.

    1. I admit, Bob, I struggle with this one keeping myself contained. It has worked great for me, but in no way would I ever advocate this as a prudent process. I tend to use it as a “piggy bank” when I have extra cash with no home the past year and a half, and then sell off some. It is in 3rd place though still well behind my Ameren and Corning preferreds. Admittedly I have had more at times right before exD if price dictated such a move though. Then I have watered down share count shortly after. This past cycle I have not traded it as it largely hasnt moved in several months allowing for last pre exD price. It will start creeping towards par plus interest payment amount in next month or so I suspect.

  2. For those who own NSS, I read conference call. It looks like they have no near term plans to call. They mentioned in conference call they are paying off last April bond maturity hiding in revolver, and clean out more of revolver debt. This sure looks to be live for a few more quarters minimum, maybe longer. They still need cap ex money and this will be provided by the private placed welfare hand out yield given to “the money people”, so no more preferreds or debt will be needed for now.
    For those looking for higher live adjustable rate yield, and mindful of the credit rating, it still holds value as one wont lose money at this current purchase price.

    1. Sweet, gonna milk this baby for all its worth. My one big shameful, sinful holding I indulge myself in to feel alive.

      1. Love your commentary from the heart George. Yes, I am with you as it is my biggest indulgence also.

        1. NSS is one of my largest positions and highest yielding notes. I wish I had more income securities that floated with a 3 month LIBOR plus a 6.734% base like NSS. Since the 3 month LIBOR is currently 2.59238% NSS would be yielding a whopping 9.32638%!
          Let’s all hope management just forgets about NSS and moves on with growing their business profitably (just not too much)…
          Wishing you profitable investing, Nomad

          1. Nomad, as you know, it lags to some degree. NuStar already pegged the January payment at 9.17% at par. Unfortunately we will have to wait a payment to get to the current yield…I suspect we will survive somehow. 🙂

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