Stocks jumped sharply last week, although they ended the week on a soft note. The DJIA traded in a range of 25,261 to 26,277, before closing at 25,989. Given that we had the mid term elections and a change in the house power in Washington one would expect a wide ranging DJIA.
The 10 year treasury traded in a relatively tight range of 3.18% to 3.23% before closing the week at 3.19%. This tight range doesn’t seem to make sense given the large gain in equities for the week, but we have had a disconnect in the market place many times in the last year–let’s face it that there are a tremendous number of cross currents occurring in the global economic scenario.
Last week we had the Job Openings and Labor Turnover (JOLTS) released on Tuesday and it can in with 7 million job openings, which is fairly strong, but is lower than the 7.3 million released last month. Wednesday we had consumer credit released–and we consider this one quite telling for economic forecasting–and it was softer than expected. We look at this number as a decent indicator of economic growth ahead (or lack thereof)–it is a 2 edged sword. 1st it is important for economic growth that the consumer spend like crazy since they drive the economy, but that credit spending will have a day or reckoning in the future when the economy softens. Thursday we had the FOMC announce no change in interest rates–as expected. I believe that the December rate hike in the Fed Funds rate is absolutely going to happen. After that hike I believe that a soft housing market and now falling energy prices will put a brake on further hikes–some may happen in 2019, but there is a possibility we will see maybe only 1 hike. Friday brought a ‘hot’ producer price index–up .6%. A large chunk of this increase was because of the rising price of oil–and with the price of oil falling like a rock in the last couple of weeks it is likely that this is a ‘one off’.
For the coming week we have Veterans Day on Monday so there will be no economic releases, but on Wednesday we have biggest economic release of the week with the Consumer Price Index (CPI) being released. The forecast is for a rise of .1%–of course we shall believe it when it is released as we don’t have faith in any forecast (and only partial faith in the actual releases). A hot number reinforces the December rate increase I expect–in fact only a black swan of sorts will derail the rate increase, but a hot CPI would at least provides some cover for the Fed.
The Fed balance sheet grew by $2 billion last week so no added pressure on interest rates from bond run offs.
We had a couple new income issues announced last week. LNG ship owner GasLog Partners (NASDAQ:GLOP) sold a new fixed to floating rate preferred with a 8.50% initial coupon. This issue is trading right at $24.49 on the OTC Grey market under the ticker GLOUF. The pricing term sheet can be found here. Also BDC WhiteHorse Finance (NASDAQ:WHF) announced a new baby bond with a maturity date in 2025 and a coupon of 6.50%. The permanent ticker WHFBZ when it begins to trade in a week or so. The pricing term sheet can be seen here.
The average price of a $25 preferred stock moved 3 cents higher last week with 241 issues trading at $25 or under which is 9 less issues than the week before.
12 thoughts on “Monday Morning Kickoff”
KTBA trading at the lowest level in about 4yrs. BBB+, no QDI.
About to go ex Div.
G, just to let you know, that rating is dated. S&P had already downgraded that to BBB and that was before Time Warner. They generally have been down grading. Moodys downgraded the senior unsecured to Baa2. Since KTBA is a corporate unsecured debenture this issue is probably rated now in Baa3/Ba1 territory. T is a debt monster now. Experts deem it servicable, though.
After being out in the wilderness for well over a year, finally got back into KTH today and take the 6.25% YTM in 2028. I used to beat this like a red head step child, buying at $30 and selling at $32 over and over. Things are changing, not buying to flip but for a definitive maturity. 6.25% for 10 years is good enough for these 500 shares. PECO is ring fenced from dirtbag parent Exelon financially so this is a pretty conservative play for me. I have really tightened the rope duration wise recently, and yet keeping credit quality strong (ok, gotta ignore NSS) and nudging up yield also recently while holding onto yearly gains.
Forgot to add although this is not extractable value being its held in trust, the relative value is very apparent. The underlying PECO bond held in trust yields just 5.27% while KTH which holds the same bond in trust has an approximate 100 basis point higher yield to maturity for same bond.
Maiden Holdings (MHLD) with a disastrous earnings on Friday. I don’t believe there’s a bright future for this company. Be carefull with all of their products.
Strangely enough MHNC is up 17% while MHLD is down 33%.
It looks like somebody knows something about the baby bond, any news??
The transactions contemplated by the Master Transaction Agreement are expected to close in the fourth quarter of 2018 subject to regulatory approvals and customary closing conditions. The Company’s current analysis indicates that the conditions to redeem the 2013 Senior Notes as stipulated by the securities may exist. Should final analysis support such a conclusion, the Company expects to redeem all of the $152,500 2013 Senior Notes at that time pursuant to the terms of the underlying securities.
Thanks Eugene. That may explain the divergence between the BB and the common.
MFZ, MHNC http://quantumonline.com/search.cfm is a very large offering of $152+ Million for a company MHLD that has a market cap of $222+ million. MHNC is redeemable beginning 12/1/18 and trading at $23.40/$23.50… very interesting indeed. Wishing you profitable investing, Nomad
Hi Nomad–I would trust these folks with a nickel–of course I am ultra conservative, but only God knows the outcomes with the joker management.
Many thanks Nomad and Tim for the input, MHLD is on shaky ground.
Hi Eugene–yes I saw it–just wrote on things in general and mentioned MHLD.