Monday Morning Kickoff

In one of the “wildest” weeks of the year in common stocks the S&P 500 traded in a range of 2822 to 2939—about a 4% range. It had opened the week at 2898 and gyrated around before closing the week at 2619.

The 10 year treasury gyrated as well trading in a range of 1.59% to 1.79%–a very large range, before closing at Friday at 1.73%. Recall it was just 2 weeks ago that the 10 year closed the week at 2.08% so at the low of last week it was off 40 basis points.

The average $25/preferred stock and baby bond closed at $25.26 which is movement up of 1 penny from last week. There are 149 issue trading at $25 or below–this is 10 more issues than the previous week.

The Fed balance sheet grew by $2 billion last week. Recall that Fed Chair Jay Powell has announced an end to quantitative tightening (the end of the runoff)–we will follow this for a while to make sure that is the case. Recall that the Fed balance sheet hit a high of $4.51 trillion back in 2015 (it was less than a trillion in 2009) and then the runoff began which took us to the current level of $3.78 trillion.

We had 2 new income issues announced last week.

Aspen Insurance Holdings (NYSE:AHL) announced a low investment grade fixed rate preferred with a coupon of 5.625%. The issue is trading on the OTC yet under ticker AHLNF and last traded at $25.20.

New Residential Investment (NYSE:NRZ) sold a new issue of fixed-to-floating rate preferred with an initial coupon of 7.125%. It is trading under the OTC ticker of NRZEP and last traded at $24.99.

10 thoughts on “Monday Morning Kickoff”

  1. Thank you,John, Bob, Gridbird,and everyone else who commented. I just retired so very eager to learn how to secure my future. My idea was set up 3 portfolios: 1 bonds/preferreds, 2 div paying stock, 3 etfs with growth potential. With a 35/35/30 split.

  2. Here is what IBKR is paying for euro cash in account. Yen looks slightly better but still negative of course. Hiding out in cash is getting expense for these people. Pssst, hey buddy, you want a big fat 100 year Mexico bond? How about some conservative only slightly negative mortgages? You can’t make this stuff up, lol.
    0 – 100,000 0%
    + 100,000.01 -0.74% (BM – 0.25%)

  3. My last buy was June now I’m taking some profits. If I left meat on the bone the next guy can have it and I’m happy for him because it’s getting too creepy out there for me. Watch out for the bogeyman.

  4. Good morning from Maui! I have a question for the community here: I started picking up fixed-to-floating preferred stock and initially went for the longer fixed periods (into 2024 and beyond) thinking we are going to likely have low rates for a while if we are to normalize to the rest of the world. Most of the floaters are off libor (short term rate anyway) with spreads of over 2.75, hopefully mimicking a longer term rates. I then got advised by an advisor to keep the fixed period shorter as rates may go up. What are your thoughts? These days if I get a YTC of at least 5% on a long floater, I think it is great. Much obliged to your wise counsel:)

    1. Aloha,
      Im not a wise one so I can’t give advise. But my opinion is that nobody can forecast interest rates. They could go up or down who in the heck knows? To me if the fixed rate is at least 5 years and decent and Floats let say at 5% ish plus Libor.. Then for myself I like it, but thats only me. Nobody ever ever predicted word wide interest rates at negative amounts. On the other hand when I was a young guy in 1980 nobody every thought interest rates were going to 19%. Its a crap shoot….

      1. Ah, but Tatala, you just proved you are very wise. You stated you do not know the unknowable. That is very wise in itself! Jamie Dimon who is the long time CEO of JP Morgan said way less than a year ago 10 yr was going to 4%. The “Bond King” was thinking 5% plus. They are smarter than us. And they have been wrong too. I make certain assumptions and then tilt it that way…All the while knowing I could be wrong!

    2. Debbie, I almost quit trading today. Then something popped up. UTG, a utility closed end fund, trading no longer below NAV, very well managed with a long history, giving me close to 5.9%. They just raised the interest by a penny in July. It is a 20+% or so leveraged. This fund is not well understood by the market place. Someone just sold a huge block as the breadth of the market and the DOW and the SPX all see to close badly. Picked up 45 more shares $36.08.

      1. Debbie, I seldom hold huge positions in common stocks, except SBUX, which were beaten up for a couple of years or so. The other one is CTL. I made money on CTL’s baby bonds, e.g. sold off CTAA when the new executive, Jeff Storey took over the company and redeemed a whole much of high coupon baby bonds. Many years ago, CTL always have ups and downs, some SA person commented that their medium term bond, around 8 year duration were always giving more interest (yield to worst) than the baby bonds. So, I have accumulating the bond for quite a while. This bond is no longer trading below par despite Moody’s downgrade when the quarterly report on the Q4 of 2018, suggesting that CTL has continuing declining REVENUE. CEO is determined to pay off the debts and using the free cash flow to invest in new technology with Fiber all over the US and some overseas. He sold off legacy old tech when he deemed that the margin was unsatisfactory. The common stock went down 8% but it climbed back last Friday and today with 3.75% gain. I am NOT suggesting that you to buy common, although the pro forma yield is almost 9%. I do have sizeable position on CLT common with a cost basis still way above the current price. However, CTDD, 6.75% seems to be a good deal IMHO. I do have small position of the CTDD. Some of the eREIT preferred such as HT-D (6.5% coupon) or PEB-E (Tim’s nice pick) higher quality hotel should be okay IMHO (no existential threat).

    3. What does the rest of your fixed income portfolio look like? Are you well diversified with respect to how issues will move in either up or down interest rate environments? Your question needs to be answered in the context of the total portfolio and your personal circumstances.

      That said, assuming you are free to “lean” a bit, I wouldn’t be leaning in the direction of higher rates. What is going to push rates higher? Trump? The FED? The ECB? The economy? Don’t think so.

      I would lean in favor of lower rates, and in favor of issues that will do well in that kind of a rate environment.

      For me, that means higher quality issues, at least BBB by Egan Jones (that’s a joke, folks), fixed rates, or min rate issues. I particularly like Canadian min rate issues right now.

      And you are totally right to be looking at YTC. Look past nominal yield. A 6% issue with a 3% YTC is going to get you 3%. I pretty much promise.

      I like F2F in principle, but the timing is not good for them. To me, anyway. If you are going to do them I would favor the longer periods to float. If an issue goes fixed to float in the next couple years it’s more likely to float down than up. Do the math at a LIBOR 100 bps lower than today. See what the yield would be and imagine what may happen to the price.

      1. Bob, most of my investment experience came from Preferreds starting circa 2007 sort of following Bill Gross and loved his PIMCO total return with zero loss on the 2008 slaughter (then I also missed the bull market before that). I started subscribing Doug Le Du’s service and studied Le Du, Simon Worthsworth (author of “Cash is King”), my hero and Ken Winans. Most of my allocations have returned to preferreds of all kinds, from SWANS like WFC-Y, WFC-L, IG bank preferreds, HBANO (bought back right after the last Xmas Eve big dive), Tri State Bank both issues, some NI-B (unsold), Nee-N, just 200 shares of MGR, lots of SPKEP, some JE-A, tons of Shipper Preferreds, SB-C and SB-D (probably my largest single company position) taking advantage of super honest Greek shipping company founder, who owns 26% of the commons and preferreds and saved the company by buying the new custom-made (Japan) huge ship with his private company’s money and let the SB, Inc. to run the lease. HMLP-A, great shipper, strong balance sheet, probably little or none Chinese exposure, running through the northern Europe and/or Russia, I believe (this was Lord Xot from pick, substantial positions on GLOP-A, and B, GMLPP and unfortunately large positions of GMLP common with huge unrealized loss), legacy positions of Amtrust preferreds (some left and 100 shares of the baby bond) + CBL-D and some CBL bond. I am definitely long on holding preferreds, not worried about the duration risk, Bob. I am sorry to see Mr. J. Powell got trapped and wish that perhaps Michael Bloomberg may somehow offer his assistance (not meaning political) except always am an admirer of Mr. Bloomberg’s attempt to impose tax on oversized soda pop to poison our people. I became diabetic because I forgot to eat lunch after 11 hours of continuous working. Then ate like a pig. Today, I do not eat any fast acting carbohydrate except brown rice or brown bread (I read the label claim carefully) and have Hemoglobin A1C essentially consistent with older (I am 76 almost 77) non white people. Bob, I kind of follow Le Du in his thinking. Even if we get taper fear again and I am sure there will be someday, as long as the issues you hold, we get the same dividend or interest. He uses this kind of talk when his “sheep” (subscribers) start complaining that what they bought lost value. Then he lectured on INCOME (his kind) investing vs. VALUE (equity kind) investing. Or he would say, “do you want to pay more to buy more? Or you can take the advantage of buying more because now it gets cheaper?” The truth of the matter is: extremely difficult to forecast the future. I do have sizable positions of ARCC and PEGI (the decent picks by Rida Morwa) and NGL-B and some NGL-C in my wife’s IRA. BTW, NGL seems to have a mixed earnings. Not great, but smart to pay down the debt PLUS almost 80 – 100% hedged on their oil ($60 per barrel was their hedge). I tried to buy just some 40+ shares for my wife’s IRA. Fidelity will not accept the order deemed too risky. Ditto for CODI-B. So, I bought her a little more SB-D.
        BTW, I have no grandchildren. Our only offspring, a daughter a little older than 50 years of age. I am trying to teach her income investing instead of running the small apartment units, totally sabotaged by some radical tenants across the common driveway. Therefore, I do not worry about duration risk. I still have lots of Colony capital preferreds (not great, but perhaps a little better shape than Ashford Hospitality (AHT).. BTW, AHT preferreds came back a little. Apparently they still have some saleable assets. They brought down the debt to equity a little more. I will try to sell my daughter’s AHT preferreds when her power of attorney paper came through from Schwab. I probably have more than 100 positions. Small position on Xan-C. Small cap non callable with huge coupon. Rida Morwa’s pick right around Jan 2019. I did not dare to go big and just added tiny amount. His competitor posted “insufficient coverage of the commons.” The market reacted just a little. It came back alive and well. Like Grid said, it works until it does not (someday, maybe). BTW, UTG has its risks. Some do not understand like the person who sold 300 shares using market order I bet. Then it started to tank. Look at VPU or XLU, trading all position until market close. I do not want to buy VPU, insufficient yield and its intra day trades is opposite of the 10 Yr T. And if the FEAR got intense, both VPU and UTG could tank.
        Bottomline: Short term or even a few years, Fed rates are probably going down with inverted yield curve, more exacerbated. Hence, floating is not good at least for now IMHO. Some complain about the floating of PFLT. Market does not like BDC’s these days at all, understandable IMHO. I have an assortment of eREIT commons with acceptable yield and risk/reward. I believe eREIT of decent debt to equity ratio should hold better than BDC’s in a bear market. BEP and AY (alternative energy) seem to hold; I wish I bought some TERP, lower pro forma yield.

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