Monday Morning Kickoff

The DJIA traded in a range of 25,372 to 25,950 before closing Friday at 25,928.

While the DJIA is ‘partying on’ the interest rate complex is signaling caution ahead. The 10 year treasury traded in a range of 2.36% before closing just over 2.40%. We have a conflict in these numbers and we side with the interest rates markets in believing that investors have to be cautious.

The FED balance sheet fell by $8 billion last week–a logical person would think that the FED will let the runoff continue as long as the bond market is signaling lower rates.

The average preferred stock rose by 12 cents last week–with tremendous volume the last few days of last week as funds were likely rebalancing. We now show 182 preferred stock issues trading at $25/share or below.

Last week we had 4 new income issues priced.

Duke Energy (NYSE:DUK) priced a new perpetual preferred with a fixed rate coupon of 5.75%. This is a nice investment grade utility issue. The issue is trading under the OTC ticker of DUEKL and trading around $25.47.

MLP NGL Energy (NYSE:NGL) priced a new perpetual fixed-to-floating rate unit with an initial fixed rate coupon of 9.625%. The issue is trading on the OTC market under ticker of NGLPP and last traded at $25. This partnership will issue a K-1 at tax time.

BDC Oxford Square Capital (NASDAQ:OXSQ) sold a new issue of baby bonds with a coupon of 6.25%. The issue is not yet trading (as far as we can see), but should be trading sometime this week.

Lastly IberiaBank (NASDAQ:IBKC) sold a new perpetual preferred flixed to floating rate issue with an initial coupon of 6.1%. The issue is trading around $25.09 under the OTC Grey market ticker of IBBRL. This issue has the quirky feature of paying only 2 dividends per year–until it reaches the floating rate period in 2024 at which point it will begin to pay quarterly.

15 thoughts on “Monday Morning Kickoff”

  1. This is extremely interesting. The Federal Government just released the “Financial Report of the US Government” for 2018 https://fiscal.treasury.gov/files/reports-statements/financial-report/2018/03282019-FR(Final).pdf
    Some highlights:
    In Fiscal Year 2018, the government’s total net loss was $1.16 TRILLION.
    Uncle Sam collected $3.4 trillion in tax revenue in FY18. But they spent over $4.5 trillion.
    Of that $4.5 trillion spent, nearly HALF went to Social Security and Medicare. (They also spent a record $523 billion just on interest payments on the national debt!)
    This is extraordinary given that the Social Security and Medicare trust funds are set to run out of money within the next 15 YEARS! In other words, despite spending almost HALF the federal budget on Social Security and Medicare, both programs are effectively insolvent.
    As a matter of fact, on page 10 of the report, the government estimates Social Security’s long-term funding gap to be a mind-blowing $53.8 TRILLION (which is almost 10% worse than last year).
    To put that number in context, $53.8 trillion is roughly 70% of the entire world economy. That’s how bad the Social Security funding gap is.
    But it gets worse. As part of the report, the federal government also tallies up its assets and liabilities, just like any individual or company would do.
    If you have assets (like houses, cars, cash, investments) worth $1 million, and liabilities (credit card debt, mortgages) worth $300,000, your net worth is $700,000.
    The government has assets as well: a total of $3.8 trillion. The single largest component of that– $1.08 trillion– is STUDENT DEBT.
    In other words, the government’s #1 asset is the debt owed to it by young people across America. That’s pretty sad.
    The next biggest asset is what accountants call “property, plant, and equipment”, or PP&E. That’s the sum total of all the land, government buildings, tanks, aircraft carriers, military bases, etc.
    For Fiscal Year 2018, the government reported $581 billion in equipment (mostly military), and about $500 billion in real estate.
    In total, the government’s $3.8 trillion in assets sounds like a lot.
    Except that the government’s liabilities, i.e. the national debt, etc., totaled more than $25 trillion.
    That makes the government’s net worth an unbelievable NEGATIVE $21.5 TRILLION.
    And that’s a lot worse than the government’s negative net worth of -20.3 trillion in 2017, -19.3 trillion in 2016, -18.2 trillion in 2015, -17.7 trillion in 2014…If you add their own estimate of Social Security’s unfunded liability, Uncle Sam’s total net worth is NEGATIVE $75 TRILLION… which is almost precisely the size of the entire global economy.

    What could possibly go wrong? Nomad

  2. Here’s a spec that I’ve done just the basic work on: MTBSP
    Definitely a spec, steady monthly since 2015, yielding 10%+, issued prefs to double the size of the company and has successfully integrated,revenues and growth have followed, a non-financial/ins diversifier, AND QDI!
    There more work to be done. I know the gold panners out there have crossed this one before. JA

  3. For NGL, appreciate there are K-1s and there are K-1s. The K-1s of MLPs generally have exactly one entry, a guaranteed payment. Tax software take it directly to schedule E.

  4. Who buys 11 shares of $25 shares? Hard NOT to use an AON, but thus is the preferred market! We’ll see how the day pans out on that trade!
    We need to explain the round lot (Hint: 100 shares)

    1. “Who buys 11 shares of $25 shares? ”

      Lots of reasons that could happen…it could be someone whose round lot limit offer didn’t get filled on their first attempt, or maybe someone executing a dividend reinvestment strategy. I’ve lost count of the number of times a round lot limit offer of mine is filled in two tranches, or just partially.

    1. In a hot preferred market, I am not sure why such a tepid response to MGR. I will settle for a few steak dinners with a small profit, given the lack of interest in this issue.

      Plenty of 5.875% yields available in market-place. I exited my AIG/PRA at $25.52 to buy IBBRL on Friday.

      1. SteveA–it is hard to figure these things sometimes–but I have done a lot of nice steak dinners recently.

        The banks and utilities have been the best new issues lately.

      1. Thanks Jeff, Tim and all. MGR is a definitely a hidden gem. The reason that it was not received well is: solid bond not QDL. There are tons of folks out there who really hate paying taxes. I sold my SWAN partnership preferred units quickly, not at top price, but still it is profitable AND I believe it would be called in time to end up with subpar YTC. Placed an order waiting and hoping to be executed. Got to go to see my doctor as scheduled. Darn it, only 100 shares at $24.76. I was the higher bidder. These market makers are extremely smart. Last Friday I bought tons of IBBRL and thought I paid too much. Yes, I did. Then it gapped up to $25.22 very easily. We must thank to Jerome Powell, who is determined NOT to raise rate for the rest of the year. Not great for the nation. Then, the extreme tax cut enabling corporations to buy their own stock back, doing little to help the country, is perhaps equally bad. LOL.
        I may have raise just a penny or 2 just pay commissions twice. Then I must remember to allocate money to pay property tax plus huge tax bill for filing extension on April 15. Yes, the Federal tax is definitely higher for us Californians and perhaps New Yorkers too. Yep! LOL.

        1. Picked up another 100 shares. So far so good. Looks like I am the only bidder. Yep. I picked up a total of 300 shares. Not bad. Still would like to get another 150 shares.

          1. All 450 shares filled a $24.76, which is the current bid price for just 100 shares or more. Good luck for those who wish to buy. It could come down more. Not QDL. Then look at their weird convert. trading at par. I did not even bother to do my DD, relying on Moody and SP. Issuer is also a large cap. Yes, this is a perpetual and could fail with increasing rate increase. Then I believe I would be “protected” by another earnings recession” or “consumer recession” or economic downturn.

            1. BTW, many of the publicly traded partnership are actually very bad for taxes. Even the SWANS. It could be at least as much as the ordinary income. Exceptions are few, EVA (common) and perhaps TCGP, non cumulative and non QDI note issued by the Carlyle group.

              1. John – why the neg feeling toward partnership taxes and why would you feel differently about Carlyle?

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