Monday Morning Kickoff

So last week was a terrible week for equities with the DJIA losing over 1000 points.  We have too much uncertainty in the markets right now and the massacre in the oil trading pits has done substantial damage to energy related stocks and in particular to the high yield LNG ship owners.  LNG shippers while not directly damaged by lower crude prices will suffer the real (or perceived) potential for less demand down the road as over time (a year or two) a large mispricing of 1 commodity (crude) can damage demand for LNG.

Interest rates continued to drift lower as the 10 year treasury fell as low as 3.03% before closing the week at 3.05%.  We are now at the lowest level on the 10 year since mid-September.

Last week we had a bunch of housing numbers released and generally they were so-so.  Building permits were below expectations, while home starts were above (a very small amount).  The home builders index dropped a good amount–to 60 from 68–no surprise to us and likely to slow building of new houses over the winter.  Durable goods orders were below expectations.  Crude oil inventories built by over 4 million barrels after a build of over 10 million barrels the previous week (no wonder oil prices are dropping).  Consumer sentiment continues to drop with a reading of 97.5 in November–we need to watch this closely as the consumer drives the economy.

For the coming week we have Consumer Confidence announced on Tuesday and on Wednesday we have 3rd quarter GDP announced.  On Thursday we have the minutes from the last FOMC meeting being released and this always provides fodder for the talking heads.  And of course we always have more than enough yakking from the various Fed officials, but the big one this week is that Chair Powell will be speaking on Wednesday and this will be parsed to no end.  Late in the Week Trump will be in Argentina and meeting with Xi—this will be a big deal to the various markets next Monday and of course no one has a clue as to what will happen with these talks.

The Fed Balance sheet data from last week has not yet been updated (holiday week) so we don’t now how much the balance sheet changed last week.

There was only 1 new income issue announced last week and that is a term preferred issue from OFS Credit Corp (NASDAQ:OCCI).  While the company made the preliminary filings they have not as of yet priced the terms and coupon on the issue.

The average $25 preferred share fell all the way to $23.72 last week which is a 18 cent drop on the week–obviously showing that preferred have been moved a bit lower with common stocks dragging them down.  We now have 261 issues trading at $25 or lower which is 8 more than the previous week.

11 thoughts on “Monday Morning Kickoff”

  1. Does anyone have an insight into HCFT-A? It’s the old Five Oaks preferred that is now Huntsman. I was wondering if the bond is going to be called after the Dec payout. Call date is 23 Dec. I can’t find any news about whether it gets called. After Dec the rate floats as 3 month Libor + 7.151% for a current rate of 9.732% paying monthly. I’m thinking of buying more. The price is $25.20 and I don’t want to pay the premium if it gets called. I have an inquiry with investor relations and have not gotten a response.

    1. Palemooner–I have no insight into the issue being called, but it may well remain outstanding.

      Right now it is priced at 25.24 with an exdividend date coming up in about 2 weeks. Given that it pays 18 cents/month I wouldn’t let the current price stop you (assuming the issue meets your needs) as they generally give 30 days notice of a redemption which means there is little/no call risk in the issue.

      I wouldn’t hold my breath on info from investor relations–they are not able to give you an information that they haven’t given to the general public.

    2. I picked up a tranche of HCFT-A about 6 weeks ago and have been very satisfied with it’s stability (off 0.17%) in this turbulent market. I also like the fact its a monthly payer, and will be floating rate as of January. Call risk seems to be the only concern with this one.

      You might also check out TNP-B, a shipping preferred approaching its ‘failure to redeem’ deadline. It pays an 8% coupon and is currently trading about 25 basis points below par, despite the fact it will most likely get called before the deadline in July of next year. That’s over 10% annualized return with very little risk as I see it.

      1. If my math is correct they could keep TNP-B outstanding, pay the penalty and its par yield would still be lower than the current yield of the last two issued preferreds.

        1. Hey Grid…you raise an interesting point, which is what happens if they don’t redeem. In that case the coupon on TNP-B would rise from 8% to 10% which would jump the B-shares to the top of the list in terms of coupons paid. The next highest coupon after that would be the newly issued F-shares at 9.5%.

          Paying the penalty on the B-shares might make sense if management has other plans for the $150 million they raised by issuing the F-shares. From their perspective it amounts to an extra $1 million dollars per year to pay the FTR penalty on the B-shares, with the option to call them at any time.

          That might make sense if management wanted to expand their fleet with the money they raised, something they’ve expressed an interest in doing. This question will likely be raised at their next earnings call, which I believe is on Friday.

          My guess is that TNP-B gets called in 2019, which leaves Tsakos with about $100 million to play with. However, if management chooses to pay a 25% coupon penalty to keep those B-shares outstanding, I’m happy to receive the extra coupon.

  2. I have not been a stock market bull. Maybe I have a bearish slant or perhaps I am overly cautious.

    Not happy with GM’s announcement this morning on all the layoffs and close down of plants. Housing slowing, auto’s slowing. Guess that leaves us with FANG (Facebook, Netflix, Amazon and Google) ? Well if you have been paying attention to them they are slowing also.

    1. Hi Steve, the slowdown is probably caused by a number of factors such as higher rates, tariffs, expansion long in the tooth, diminishing effects of tax cuts. And on top of that the secular effect of ageing population.

    2. Hi SteveA—seems like deja vu. Autos not selling–small cars in particular as we move more and more to larger truck type vehicles (although more fuel efficient than in the past) as energy is cheap. Duja vu would say at some point we get a black swan energy event–folks stop with purchases of large vehicles and then the dominoes start to fall.

      On the other hand I agree with MFZ–certainly to some degree.

      In general I am not happy when plants close and thousands are laid off–in these cases most of these folks will never make as much in the future as they have in the past as they are not likely able to move to comparable jobs–they can all go to work for Amazon for $16/hour which leaves them simply as fully employed folks needing subsidies.

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