Monday Morning Kickoff

Well last week was an exciting week–and not necessarily in a good way.  The weekly movements in both the DJIA and the 10 year treasury did not reflect the damage done to income investors in preferred stocks and baby bonds.  While income issues held up well early in the week share prices fell in the later part of the week as large block trades continue to hit the market-no doubt reflecting portfolio changes being made by the large funds.

The DJIA traded in a range of 23,881 t0 24,828 with a close on the week at 24,100.  The 10 year treasury moved in a range of 2.83% to 2.92% before closing at 2.89%.

Last week we had both producer price (PPI) and consumer price index (CPI) being released and both were relatively tame with the price of energy helping to keep consumer prices at the lowest level of inflation this year.  While there we many other minor economic reports last week most were of little consequence.

For the coming week we have the Home Builders index on Monday, Housing Starts on Tuesday, Existing Homes sales on Wednesday–the trifecta of monthly housing numbers.  This is important to us as it is a measure of consumer sentiment and will guide us a bit on economic softness ahead.  We have the release of Leading Economic Indicators on Thursday and Durable Goods on Friday.  Durable goods have been running kind of soft recently so we want to see if this number confirms prior releases (last month was -4.3%).  Friday also brings us Consumer Sentiment–remember the consumer is 70% of the economy.  We also have a revision of 3rd quarter GDP on Friday.

Of course the biggest economic news will be the FOMC meeting which starts on Tuesday and ends on Wednesday with the interest rate announcement at 1 pm (central) followed up by a Jay Powell news conference at 1:30 (central).  There really should not be any surprises here–we expect a 1/4% hike in the FED Funds rate with a dovish statement about 2019.  We have written we expect 1 interest rate hike next year–maybe in June–but it is so data dependent that we wouldn’t be surprised if it ends up we see no hikes in 2019.

Last week the Fed Balance Sheet rose by $2 billion last week after a runoff of $11 billion the week before.

Again last week we had NO new income issues being announced.  We continue to have 2 issues that were previously announced, but not yet priced.  These are from BDC Great Elm and from CEF Priority Income Fund.  Neither of these issuers are strong companies and likely the pricing they want has been difficult to come by.

The average $25/share preferred held up well UNTIL Thursday.  Monday through Wednesday showed a price drop in the average share of just 4 cents, but the bottom fell out a bit on Thursday and Friday as the average share fell by another 16 cents–for a week total of a 20 cent drop.  There are 293 issues trading at $25 or below.  The most damage in preferred shares was done in the Ocean Shipping segment of the market, although some issues began to show stability as the week came to a close.


9 thoughts on “Monday Morning Kickoff”

  1. This has been a painful quarter :*( Everything is getting hit. Even the “safe” stuff. Thanks Tim for the time you spend sharing your knowledge.

    Good day from Wisconsin

  2. Thanks Tim. As probably the least experienced income investor (none), I’m facing a daunting task of assembling an income portfolio in 2019. Your comment “Neither of these issuers are strong companies . . .” pointed out to me that I need a basic company screening methodology to pick issuing companies that are reasonably safe. And I’m talking about the companies financial strength, not just the issued security. If you have written about a suitable screener Tim, and I suspect you have, would you provide a link please? Anyone else willing to share their screening tips would be most helpful as well. Thanks in advance for helping educate me.

    1. mikeo–I may have wrtitten something like this, but the folly in trying to write about those types of things is everyone is different.

      Questions of your age, how much will you need the yield, what are your other assets, what pension do you have–etc., etc, all make the answers different for each person and there is no right or wrong answer.

      If you are new to these types of issues I would simply start small–100 shares here and 100 shares there and thus you will learn by doing.

      The preferred stocks from closed end funds are the safest issues out there and are a good place to start – purely from a safety perspective. The yields are a bit low and the share prices move around, but regardless of where the share price moves to you coupon is safe.

      Those issues can be found here–the page explains why they are the safest.

        1. hey Mike – probably you’ve already read some of the caveats – like don’t chase yield. One tip I would add is to check out the underlying company issuing preferred stock. If the common dividend is covered (if there is one) with adequate cash flow, you have some protection. good luck!

  3. Hi Tim,

    Thanks for the service, it is great.

    I was just wondering why RLJ-A is not listed on any of your preferred spreadsheets.


    1. Hi Ken–let me check it out-it may be one of the 1% that is missing for whatever reason–I will get it in there.

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