Monday Morning Kickoff

Stock markets will close at noon (central time) on Monday and reopen at normal times on Wednesday.

Well not much can be said about last weeks stock market action except that it pretty well sucked for everyone.  Whether you owned common shares, preferred shares or baby bonds you likely took a good spanking.  Folks like to compare this particular market to other historical markets–BUT there is no comparison-we have never had a $4 trillion dollar balance sheet being unwound, coupled with a falling 10 year treasury and rising Fed Funds rates.  So it is new–without precedence, and it can be pretty damned scary.

Last week the DJIA traveled in a range of 22,396 to 24,088–a range of around 1,700 points before closing the week near the low at 22,445.  The 10 year treasury, which has had little meaning for income investors, moved in a range of 2.75% to 2.89% closing at the 2.79% level.  There is not much doubt that the bond market is signaling a slower economy ahead.  Additionally there is a rush to ‘safety’ in treasuries—why would I want 2.79% on a 10 year treasury when I can hide in money market funds paying me 2.25% on their way to 2.40%?

Last week was totally dominated by news on the Fed Funds rate hike which was 1/4% as we expected.  What was not expected by us was the somewhat hawkish tone set by Jay Powell.  From a market perspective he screwed up big time–why the hell would you toss fuel on the fire when you could simply convey to the markets that you are data dependant without preconceived notions of rate hikes ahead.  What is done is done.  Last week we had the Home Builders Index released on Monday and it was softer than expected.  Housing starts were announced slightly better than expected and Existing Home Sales were above forecast.  Housing numbers overall were pretty flattish.  The 3rd quarter GDP revision came in .1% light–no big deal.  Durable goods orders came in on forecast.  Consumer spending was right on forecast and surprising to us was that Consumer Sentiment was better than forecast–this will fall like a rock next month.

For the coming week we will have a light economic release calendar with nothing of consequence being released until Wednesday when Case-Shiller home prices being announced.  On Thursday we have Consumer Confidence being released for December–we will be interested in how this one shakes out with the market turbulence.  We also have New Home sales being released Thursday.  On Friday we have the Chicago purchasing managers index and pending home sales.

The Fed Balance sheet had a runoff of $4 billion last week.  It is funny to hear so much discussion by the ‘talking heads’ on TV about the runoff.  We have been discussing this on site for the entire year–we all knew this was going to be meaningful at some point in time.  We started putting a note in the Monday Morning Kickoff each week in April because we knew it was meaningful then.

Last week, once again, we had no new income issues announced–who the heck wants to sell a new issue into chaos.  OFS Credit did file an updated prospectus for a new term preferred issue which they had originally announced a month or more before–but nothing final here.

It was a very bloody week for $25/share preferreds with the average share off 63 cents–we do not recall a weekly loss of this magnitude for many years.  Additionally we have 329 issues trading at $25 and below.  Just for reference we had around 147 issues trading at $25 or below as recent as September.



9 thoughts on “Monday Morning Kickoff”

  1. Anyone have an idea why COWNZ is down $1.01 on the day even though it is not a perpetual (2027)? Too risky? I’m not really great a reading financials but there are a lot negative numbers there.

  2. The spanking I took last week was with my britches pulled down! I will stay the course though. Thanks Tim for your Monday Morning Kickoff. Keeps me up to date.

    1. Hi puck49–I see a lot of activity over the weekend on the website–lots of discussion, but I try and stay away until the Monday Morning Kickoff.

  3. Interesting update on perpetual dog with fleas Navios Maritime. Personally its a top 3 rule of mine to not in invest in shippers, but that is largely irrelevant to my point here. For any newbees dont consider the words “cumulative” and “ $25 par” as having any relevance when you dumpster dive chasing yield as things go bad……When push comes to shove your chances of getting screwed over is more than you think.

    1. Hi Grid–thanks–I haven’t read it yet, but chasing some of these yields is suicide–this is one I wouldn’t go near at all. Recall back a few years ago when the upstream MLPs went bust–I remember some investors-some large ones–chasing their MLP preferred yields down into the rabbit hole because the MLP were ‘hedged’–massive holdings evaporated.

  4. I’m not cerebral enough to know anything so last week I just bought what looked like a good deal to me.

    BBB OAK-B 6.55 traded to 7.7%
    BBB- SNHNI 5.625% traded to 8%
    BBB- PBC 6.875% traded to 7.7%
    BB+ AQNA 6.875% trade to 7.2%
    NF CHSCO 7.9% traded to 7.9%

    Flat, some have a bit higher %. A couple I bought at lows, the others a little higher. I flipped largest portion of SNHNI. I would buy more of something (else) this week on another drop of this magnitude. I jettisoned any remaining high yield and very low yield holdings Tuesday and Wednesday, ouch. Bought the above Thursday and Friday.

  5. Let me add one more item to keep an eye on. It occurred in the 4th QTR of 2018, the “bankruptcy”of a Sears Holdings. I spent 0 time looking at a failed retail store bankruptcy. Apparently, the manner in which credit default swaps (insurance on the bonds if the company defaults) is being handled is quite unique, It may have temporarily unsettled credit default swaps for other companies .

    I offer no opinions, this is a million miles over my head

    1. SteveA–I is over my head also–although I hear the smart folks talking about such things.

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