Monday Morning Kickoff

Once again we start a week wondering if we will see some market movement of magnitude–one way or the other. We do note that 1st quarter GDP will be released on Friday and the Atlanta FED GDPNow forecast is now at 2.8% while the range of forecast from economist is between and 1 and 2% which is quite a contrast to the GDPNow forecast.

The SP500 traded in a range of 2891 to 2918 before closing the week at 2905–a range of less than 1% for the Good Friday shortened trading week. The 10 year treasury traded in a range of 2.54% to 2.61% before closing out the week at 2.56%.

The FED balance sheet assets fell by about $5 billion last week which gives us a drop of about $30 billion for the last month and leaves the balance sheet with $3.931 trillion in assets.

The average preferred stock and baby bond is trading at $24.72 which is 5 cents above the previous week. This leaves us with 244 issues trading at $25 or less which is virtually unchanged from the previous week (242 were at this level the previous week).

MLP giant Energy Transfer (NYSE:ET) was the only company to announced a new issue last week. The partnership announced a 7.60% fixed-to-floating rate issue which is currently trading on the OTC Grey Market under ticker ETPEP and last changed hands at $24.90/share. We did purchase a position in this one although we won’t likely hold long term.

The Sotherly Hotels new 8.25% preferred issue is still trading on the OTC under ticker SOHEP and closed last week at $25.20.

18 thoughts on “Monday Morning Kickoff”

  1. Social Securities present and future:
    Hot off the presses: The Board of Trustees for the Social Security and Medicare programs in the United States just released their annual report a few minutes ago.
    And if you want to read all of its gory detail, check it out for yourself here.
    Both of these programs are massively and terminally underfunded. And not by a little bit.
    The Board of Trustees itself calculates Social Security’s long-term shortfall at a mind boggling $43+ TRILLION.
    Simply put, the trust funds don’t have enough money to keep the programs going, at least under the current promises.
    They admit right at the beginning of their report that, starting 2020, Social Security’s cost will exceed the money it earns in from interest and taxes.
    That’s not some far out date decades into the future. That’s next year. And every year after that.
    By 2034, just 15 years from now, Social Security’s primary trust fund will be fully depleted. And one of Medicare’s trust funds will run out of money in 2026.
    In case you’re wondering, by the way, the Board of Trustees consists of the United States Secretary of the Treasury, Secretary of Labor, Secretary of Health and Human Services, etc.
    This isn’t a bunch of conspiracy theorists. They’re some of the top executives in government.
    So I’m not exaggerating in the slightest when I say this is a complete disaster. Millions of people depend on Social Security for their livelihood… people who have been promised for their entire working lives that the program would be solvent.
    When the funds run out of money, countless people’s lives will be turned upside down.
    You’d think this would be considered some kind of national emergency… that politicians would be doing everything they can to fix this.
    But hardly a word is uttered about it. 15 years is far enough out that most of these people don’t expect to be in office anymore… so it will be someone else’s problem to deal with.
    Not to mention, their options are extremely limited.
    On one hand, they could try to actually generate more investment income for the program. To me this is an obvious choice.
    Right now the Social Security trust funds have $2.9 trillion in assets. Yet they only earned a pitiful $83 billion in investment income last year, a return of roughly 2.8%.
    That’s barely enough to keep up with inflation.
    Seriously– is this the best these people can do? 2.8%? The United States is home to some of the most brilliant investment minds in history who could easily double that investment return.
    This is what other countries do– Japan, Singapore, Norway, etc. Fund mangers for public pensions have the discretion to invest in assets all over the world in an effort to derive higher returns.
    But that’s not going to happen in the Land of the Free.
    It’s actually ILLEGAL for Social Security to invest in anything EXCEPT for US government debt. I’m serious. Social Security’s ONLY assets are Treasury Bonds, and under current federal law, that’s all it will ever be.
    Thing is- the US government really needs that money. They’re already $22 trillion in debt and going deeper into debt each year.
    They can’t afford to allow Social Security to invest in anything else other than US debt. They’re already over-reliant on Social Security as a lender, and allowing the trust funds to invest in anything else would be financial suicide.
    So that option is off the table… leading to option #2: Cutting benefits.
    And you can absolutely count on that happening. The Trustees themselves even say this– that after the fund is fully depleted in 2034, they will have to make deep cuts to the monthly benefit.
    Again– tens of millions of people are depending on that money. Tens of millions more will be depending on it when they retire in the future.
    Slashing benefits is going to have a massive impact on their lives.
    The last option is to raise taxes. And just like cutting benefits, you can count on this happening.
    Just wait for the Bolsheviks to rise to power. They have a limitless agenda and no qualms about jacking tax rates up to 70% or more.
    I really don’t want to sound alarmist. But there are obvious realities here that any rational person should take very seriously.
    At some point, most of us probably expect to retire. And retirement will take very careful consideration in full view of all the facts.
    These are facts… and it’s important to start planning with these basic truths in mind: the longer you have until retirement, the less likely that you’ll ever see a penny in benefits.

    To your freedom,
    Signature
    Simon Black,
    Founder, SovereignMan.com

    1. Gee, Simon, thanks. For a minute there I was thinking maybe you really did want to sound alarmist.

      1. camroc, here is the Social Security and Disability Trust Funds 2019 annual report if you would like to read it… It’s ONLY 270 pages, so reading between stop lights or TV commercials may be prohibitive https://www.ssa.gov/oact/TR/2019/tr2019.pdf
        Time flies over us but leaves it’s shadow behind, Nomad

        1. Do you suppose this is why the super elite have bought all the land they can in New Zealand or are busy renovating old missile silos in Kansas and stocking up? Has there been a run on pitchforks yet? If history has proven anything, it’s that Americans don’t fix bridges until they fall down. Meanwhile…

      2. Camroc, Losing any of my SS is hardly a disaster for me. The WEP took care of that back in the 1980s. So if they confiscate all my SS I am due at 62, Im out $177 dollars a month. For me I suppose I should worry more about the increased taxes that may come to plug the gap down the road. 😁
        This problem has been known for 20 years. Cant blame either party specifically as they have both had opportunities to address the issue….And they both have punted when in control.

        1. You and me both. My SS just about covers my medicare insurance, which is in dire straits, too. I guess I should prolly just step off the planet and avoid the coming apocalypse…

    1. ETPEP traded over 2.6+ million shares today; you may want to call your brokerage firm and ask them why they do not show this preferred.
      Wishing you profitable investing, Nomad

  2. Bob-in-DE
    Thanks, I was hoping someone holding any of the A thru D series would share their experience.
    Gumfighter
    I have preferred issued K-1 with nothing in box 4 (all in box 5, 6a, 6b and 11 for OAK-A as example) so I think it might be specific to the issue and company.
    Tim
    This is a great site…many thanks.

  3. Re ETPEP: Does anyone know whether preferred stocks of partnerships generate UBTI? This issue seems perfect for an IRA unless UBTI appears on its K-1.

    I have owned partnerships in the past, but not preferred stock issued by LPs. I have no idea what the K-1 would like for a preferred stock. Any way to predict what the K-1 for ETPEP would look like?

    1. The K-1 for a preferred stock is relatively straightforward, with the income reported in Box 4.

    2. donocash, As long as you make sure that the income derived from the Preferred unit does not exceed $1,000 per IRA account, it should be safe from the awful UBTI. No need to file for K-1 on the IRA account. They still will issue K-1. Even Fidelity, who threatened to report UBTI, confirmed to me that there is no UBTI in my retirement account.

      1. I believe you mean it’s $1,000 in UBTI per ira. I have been told that there is a preferred that generates UBTI but i have not experienced this with numerous k-1 preferred.
        The preferred k-1’s show guaranteed income and that’s about it. The brokerage houses want you to send all ira K-1’s to them for tax filing although i suspect they only file k-1’s that show UBTI
        Schwab filed mine free of charge.
        Fidelity was going to charge but backed off
        Tom

    3. Most, but not all, MLP preferred report no UBTI. ETP-C, a related security, reported zero last year.

      I like to check the company website as companies often post sample of prior year’s K-1s.

      If you like the issue I wouldn’t hesitate putting in a qualified account. I have lots of MLP and REIT preferred in such accounts.
      I

  4. In conjunction with the SOHEP closing, call date for SOHOK was also announced as 4/19.

      1. Jdubs –
        Are you inferring you didn’t understand what I thought I posted instead of what I actually posted? 😉 Thanks for accuratizing my sloppiness… and yes I made up the word…

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