Monday Morning Kickoff

The S&P 500 opened last week at 2951 while it closed the week at 2941. The range for the week was a bit above 1%—quiet—too quiet. But we see tonight (as we write) futures are up just shy of 1% based on China trade–we shall see where this goes.

Interest rates as expressed by the 10 year treasury opened the week at 2.03% and moved as high as 2.05% before closing the week right at 2%. You’ve got to know that it is going lower—short of a complete “buyers strike” the money sloshing around the world has no place else to go. Unfortunately the signs being given by global interest rates is quite ominous and likely is going to make us income investors miserable again in the not distant future as we have to start scratching everywhere to find a suitable reward for our investment.

The Fed balance sheet fell by a rather large $18 billion last week to $3.826 trillion from the $4.5 trillion peak which was 55 months ago. There were thoughts that the Fed would bring the balance sheet down to $3.75 trillion and then stop—that is only $51 billion away which means we will reach that point in the next month or so–our bet is they do not stop–that they continue to run off the balance sheet.

The average $25 preferred stock and baby bond actually moved lower by a few cents last week–doesn’t seem right, but it may have well been related to ex-dividend dates as we had over 100 issues go ex-dividend last Thursday and Friday. Don’t forget that we have a daily updated ex-dividend list that we keep for those interested in these things. You can find the listing here. We see there are 206 issues that are trading at $25 or less–last week there were 184 issues at $25 or under so we are certain this is distorted by the heavy ex dividend calendar.

There were 2 new income issues announced last week.

Banker Synovus Financial (NYSE:SNV) announced a fixed to floating rate issue that is fairly junky–a S&P rating of BB-. The initial coupon is 5.875% and the issue is trading under the OTC temporary ticker of SNYXP and it last traded at $25.37–obviously others like this better than I do.

mREIT New Residential Investment (NYSE:NRZ) sold a new fixed-to-floating rate preferred with an initial coupon of 7.50%. While we generally do not invest in mREIT securities we took a full position in this one at $24.94 and like many predicted the fairly tasty coupon couple with the 5.802% spread when it floats in 5 years appeared attractive to many and the issue traded to $25.40/share on the close Friday under OTC temporary ticker NRXPP. We targeted a 2% gain which is just pennies away, but we will stay aboard for a while longer as there is no use bailing on a rising price. We would expect to see some price “digestion” in the days ahead as some do bail out with 2% gains.

29 thoughts on “Monday Morning Kickoff”

  1. A HUGE shout out to Rida Morwa! Sold my large position in ECC today near the top for a massive gain; wanting to thank him so much for pumping ECC! Rida, I truly owe you a debt of gratitude for you impelled your faithful automaton followers to drive ECC higher and let me exit.
    In Latin we say…
    AUT VIAM INVENIAM AUT FACIAM, Nomad

    1. Nomad, do me a big favor and have your buddy Morwa pump UEPCO and MSEXP. Considering one is only a float of a 100,000 shares and the other 780 shares, he has enough mindless minions where I should be able to sell these illiquid $100 par preferreds for at least $750 a share by the end of the day, …You might as well have him toss in a good word for your AILLI shares too. I suspect they could go for $750 also with a few purchases, lol.

    1. With a stripped barely above par, there isn’t much call risk. But these is plenty of credit risk; that’s why it’s yielding almost 10%. That’s where to focus.

  2. Talk of a trade deal with China is just that, talk. My advice to stock pickers would be to fade this rally going into earnings and wait for a better reentry point.

  3. Almost 20% of the S&P 500 has reported negative earnings surprises for Q2.

    Overall, earnings are expected to decline -2.6% for Q2 with a possible calendar year earnings decline if Q3 is as bad.

        1. That was a joke everyone. 🙂 = means it is a joke. What I was saying is that there are bearish signs all around us, and nobody seems to care about those facts. I appreciate that Marc posted that.

            1. PLEASE do not turn Tim’s wonderful and open efforts into a “typical” blog site!! Part of Investing is about setting aside the ego.

          1. Skg, you forgot many people are not up to speed yet on Modern Economic Theory. Everybody will get your joke at some point in the future but they’re not there yet. Today we had declining manufacturing and construction numbers and nobody cared about that either. Well not exactly, the market went up of course.

      1. Skg, I am perplexed by your post…..

        Since when are projected earnings not relevant to the investment world? That said, I usually don’t pay much attention to projections since nobody has a crystal ball but I still found Mark’s post interesting.

        1. I was hoping that you were joking…. but, as you can see, it didn’t translate well.… Even with a :-).

        2. Every Friday, FactSet puts out their weekly earnings season report which is full of good info but the market doesn’t seem to care over the short term. Just google FactSet S&P 500 Earnings and you will see it on Saturday each week.

          We have a subscription to their broader service which provides much more granular data which I can also summarize if interested.

          1. Thanks to all who understood and all who didn’t. My emoji wasn’t worth the hub bub. All good. SKG

            1. I got it SKG…But I have been drinking alot in Vegas today though, so that may have helped, ha.

            2. Skg, FWIW, I interpreted your first post as you expressed in the second sentence of your second post: “What I was saying is that there are bearish signs all around us, and nobody seems to care about those facts.”
              Best regards,
              No. 12

      2. Sorry about my post, Skg. Now, when I re-read your joke…..even without drinking…..it seems so obvious.

        I’ve been known to be a little slow…….and not much of a deep thinker…

        1. Amy and all-

          I pretty much think everyone here is really thoughtful, respectful, etc. Perhaps if we feel someone is trying to add a tad color and might have miscommunicated, it was just that, no harm no foul…move on. I know the internet sucks, but this wall doesn’t. If we are hearing perceived slights, we are probably hearing wrong.

          Onward!

  4. HTGC of interest for those of us holding the baby bonds…
    Hercules Receives a BBB Reaffirmed Investment Grade Corporate Rating from DBRS

    Business Wire Business WireJuly 1, 2019
    PALO ALTO, Calif.–(BUSINESS WIRE)–

    Hercules Capital, Inc. (HTGC) (“Hercules” or the “Company”), the largest and leading specialty financing provider to innovative venture growth stage companies backed by some of the leading and top-tier venture capital and select private equity firms, today announced that DBRS, Inc. (“DBRS”) has reaffirmed Hercules’ investment grade corporate rating of BBB. DBRS issued a statement announcing the reaffirmation of the rating and stable outlook, as well as its underlying analysis.

    “We are very pleased that DBRS has reaffirmed our BBB investment grade corporate and credit rating,” stated Seth Meyer, chief financial officer of Hercules. “This rating reflects our differentiated venture lending strategy and commitment to disciplined underwriting, as well as the depth and capabilities of our management team and ability to continue with our managed growth strategy.”

    The reaffirmed BBB rating reflects the Company’s moderate financial leverage, solid risk management framework and sound portfolio monitoring. DBRS also noted Hercules’ concentration in first-lien senior secured debt investments, diversified funding with strong access to the capital markets, track record of low levels of non-accruals and minimal net realized losses on investments since inception in 2003.

    About Hercules Capital, Inc.

    Hercules Capital, Inc. (HTGC) (“Hercules”) is the leading and largest specialty finance company focused on providing senior secured venture growth loans to high-growth, innovative venture capital-backed companies in a broad variety of technology, life sciences and sustainable and renewable technology industries. Since inception (December 2003), Hercules has committed more than $8.9 billion to over 460 companies and is the lender of choice for entrepreneurs and venture capital firms seeking growth capital financing. Companies interested in learning more about financing opportunities should contact info@htgc.com, or call 650.289.3060.

    Hercules’ common stock trades on the New York Stock Exchange (NYSE) under the ticker symbol “HTGC.” In addition, Hercules has six outstanding bond issuances of:

    Institutional Notes PAR $1000.00

    4.625% Notes due 2022
    Retail Notes (“Baby Bonds”) PAR $25.00

    5.25% Notes due 2025 (HCXZ)
    6.25% Notes due 2033 (HCXY)
    Convertible Notes

    4.375% Convertible Notes due 2022
    Securitization Notes

    4.605% Asset-backed Notes due 2027
    4.703% Asset-backed Notes due 2028
    I hope everyone has a great holiday week, Nomad

    1. Thank you Nomad. I avoid BDCs as a rule, but after reading up on HTGC it appears a superior option among that group. Picked up a few BBs with some residual funds in a tax-advantaged account.

      1. alpha8, thank you for your comment and reply. I’d like to see someone specifically do a study of BDC’s ratings and their bonds. I look a few times a week on the Vanguard tax free and corporate bond pages, “desperately” searching for quality bonds with acceptable yields and parameters. For some reason I’m always surprised at the better deal that the baby bonds usually are than just the straight bonds. I bought some HTGC CUSIP 427096AG7 4.625% due 10/23/2022 at a discount as well and believe they were/are a good short term value in a sea of very overpriced income securities.
        In Latin we say.. aut viam inveniam aut faciam , Nomad

    2. It has been a consistent and pattern by evidence that a situation LIKE Hercules has the 22 bonds stack up over the exchange traded by time. The Bankers and ‘control-elements’ really do keep the cream and protection. That is why I act in my own best interests also, act like these money-printers’ by trying to stay high in the tranches and asm far up the grade as possible. I have been tempted in this current environment to look like so many of the CEFs where one third of the portfolio is basically chosen by two rules: dilution of risk can be achieved by diversification and the only way to average up the yield is by averaging into some ‘good-junk’ (of course they are believers in leverage too to buy the stuff). I do NOT want to morph my portfolio onto a mirror of that.
      I personally have been pushed into a corner where age, the current cycle, available issues to ME and in m any ways picking through the exchange traded markets for scraps left to the secondary public. I go in with that realization FIRST.
      Please do as much due diligence as possible and I appreciate the support, and sensory extension of the great players on the field here. JA

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