Monday Morning Kickoff

The SP500 moved in a range last week of 2825 to 2943, closing at 2889–moving in a 4% range throughout the week is still plenty of movement and I think portends another somewhat wild week ahead for equities. Whether the moves are up or down is the question–we can see that at 6 am CST the futures are up about a percent.

The 10 year treasury moved in a range of 1.47% to 1.72% before closing the week at 1.54%. We are at the point where maybe we will see some stability in rates given that the domestic economic data is pretty decent.

The average $25 preferred stock and baby bond moved 13 cents higher last week and there are 152 issues trading at $25 or below.

The Fed balance sheet which now is in a supposed neutral mode grew by $5 billion last week, after growing $2 billion the week before.

Last week we had 2 new income issues announced.

Merchants Bancorp (NASDAQ:MBIN) announced a new fixed-to-floating rate preferred with an initial coupon of 6%, which begins to float in 2024. The issue is now trading at $25.65.

Brookfield Property Partners (NYSE:BPY) sold a new fixed rate 6.375% preferred issue trading under OTC ticker BKOYF. The issue is now trading at $24.99. This issue is a K-1 issuing security.

32 thoughts on “Monday Morning Kickoff”

  1. I’m in the retail business and the consumer is better than ever. Had my best 2 weeks to start a month in 15 years (ex Xmas). I’m not losing any sleep over a mild recession and a blackswan event could happen anytime anyway. Great job with innovativeincomeinvestor…my first and last site of every day.

  2. On TV Sunday President Trump’s chief economic adviser Larry Kudlow: “Well, I’ll tell you what: I sure don’t see a recession”. I remember this same dufus telling this same story on TV in 2008 but they trotted him out there again anyway, lol. Last summer this same dufus said “the deficit is going down”, lol. You can’t make this stuff up.

      1. Maverick–I agree we should keep the politics to a bare minimum. For the moment we will see it this self corrects.

    1. Hi P–certainly there is plenty of comedy in DC, but please try to refrain from discussing here. Thanks for your help.

  3. …..The Fed Rate, over a fairly short period of time, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well. If that happened, our Economy would be even better, and the World Economy would be greatly and quickly enhanced-good for everyone!
    @realDonaldTrump
    7 minutes ago

    1. Might be a really good idea not to post-presidential tweets. That way, you will not have to read anybody’s thoughts about them. I was so, so tempted

      1. I agree. I left 2 other forums elsewhere because of politics. Amazing how quickly a forum is destroyed because of politics, let us keep this one decent, professional and avoid controversial areas. Trusting that Tim will maintain a good environment for those who just want to do well in investment.

        1. Inspy, I have been keeping track of all the political commentary in other forums to see how many times, one persons beliefs converted the opposing viewpoint. Currently after 6 years of tallying I am at…0.. 🙂

        2. Agree inspbudget–I am up at the lake for a couple days so ma working off a wifi hotspot on my phone so don’t have my comment dashboard which would normally be the case.

    2. Hi Fabrib–thanks for considering not posting tweets in the future–from the left or right.

  4. Below Spx 2950 – 2984 fib retracement levels, the pressure is still down. Looking to hedge my preferreds again. If anyone finds this of value I will post at large turning points. ATB, Tim

    1. Tim H., it would be helpful to learn the mechanics of how you intend to hedge your preferreds, this from someone that does not feel handy with options.

      1. I don’t like options either. Let me say that I have been a technical trader from the late ‘90’s. I like to buy the dips and sell the rips. But I’m retired now and don’t want to spend my whole day in front of a computer. So I usually hedge about 10% of my portfolio, long or short. For shorts SH-SDS-SPXU, for longs SSO-UPRO. You have to actively trade these because the after hours action can kill you with one tweet. A more conservative way would be TLT. I had a lot of money in this in ‘08 and it worked very well. I believe 2925 – 2984 is strong resistance in Spx, Fibonacci retracements that work over and over. Don’t forget to use stops on shorts in case you are wrong. Good luck.

        1. Thanks Tim, I to have some experience as a technical trader and although I understand the basics of Fibonacci don’t use it a whole lot, more so with Elliot Wave Theory. Buy the dip and sell the rips I fully understand agree with. 😉

          Although TLT has had a strong run up since November I’d like to rely less on capital gains and more on monthly dividends, maybe BLV, IGSB, LQD, or assuming more risk even PSK and PFF. Something for me to think about/explore and all opinions welcome.

          1. Imho, the preferred etf’s are dogs. You are better off picking your own. I also follow some smart EWavers. We should be in a B wave rally at the moment with C wave down still to come. TLt has had a huge run. I hope it sells off before we go into a recession. I would like to buy it at lower levels. ATB

          2. As a comment regarding TLT/TBT. I knew an experienced trader that ONLY traded these two either ALL in one position or the other (or cash of course). After listening to him he showed me the volatility here is much more predictable and if studied you will see that either one will fluctuate at least 10% in any six month period in any given year, year after year as it zigzags in a trend, giving real possibility regularly, and showing real signals of when to switch and then Stop. I know he quit and moved on….so?? It is interesting to go back and look at a real chart of either and you will notice this significant volatility, but most jockeys will say bonds are MUCH MORE stable. Well they ain’t and once the trend begins it more reliably runs for a while (time). Of course there are leveraged versions of TLT/TBT too!
            Also, I don’t believe hedging prefs is “normally or easily” possible via options. You would have to use the underlying common, or an index that is pref sensitive if you can find one and that has optionability.

      2. Mikeo, one easy way to hedge preferreds is to short one of the preferred ETF’s like PFF or PGX. You can trade these commission free at several brokerages. These will NOT perfectly track any specific preferred, but then nothing else will either. These ETFS will probably have a 90%+ correlation to a broad basket of preferreds. You would just do it dollar for dollar, since these are NOT leveraged.

        In general I would NOT recommend shorting individual preferreds like some brokerages allow. The bid/ask spread can be very painful and you should assume you pay the full spread in a roundtrip.

        If you want a higher leverage approach to hedging, you can use options one one of these ETF’s, but that is a different post . . .

        Good luck

        1. TEX, Yes, these have options. Naked options will require some collateral which can get interesting as well! Da Broker wants his coverage just in case there’s a slip up!!

    1. Tim, I sold 600 shares of Just Energy Preferred A with a little over 20% cap loss, off set by QDI dividends received with net loss + opportunity costs around 8%. I still have 133 shares in my IRA account, with order unlikely to be filled. After spending hours to figure what went wrong, it looked like the same CFO may have aided the prior CEO and the current CEO committed fraud. First they sold their operations in Japan, Germany and Ireland with some 4% loss in the quarterly report ended in March 31, 2019, painting a rosy picture of their UK “venture” when quizzed by 3 capable analysts. The latest quarterly report revealed that they sold all the UK operations at severe loss, claiming, as they did all along, improving gross margins. Like CTL (Century Link), Just Energy keep on losing customers, claiming that they want to choose the ones with better margin. Unlike Century Link, they do not have genuine free cash. In fact, it is nearly impossible to find out how much cash they have left. They have announced suspension of dividends to the common. I suppose that they may have money left to pay the upcoming dividend to the preferred just about after the Labor Day weekend. Doug Le Du’s website seems to suggest that the dividend has not yet declared.
      Disclosure: I am not a lawyer. But JE really looks bad.

      1. Tim, I have sold all my 1,032 shares of SPKEP (Spark Energy Preferreds).
        Thanks to you, I have taken very nice capital gains
        Over the last weekend, I have forced myself to compute the debt to equity ratio and made an Excel spreadsheet to include the Cash from Operations Beginning and Cash From Operations to End of Operations for 2 most recent quarters. Like Just Energy, Spark Energy have experienced continuing loss of customers. They give excuse like they chose the ones with higher gross margin. This is the same kind of story given by Century Link. Unlike Century Link, it seems to me that their preferred customer “sector” reported only very small marginal percentage gain. Gross sale decline has been reported by many companies including one of the very best eREIT, WPC (WP Carey).
        Basically their current quarterly seems to have lost the nice gains they got in the prior quarter. Back to square One. Their debt to equity is now 11.8 from the prior 10.8. As a point of reference, the most recent Form 10-Q from AHT (Ashford Hospitality) has debt to equity of 13.3. Hence, there is no existential threat of SPKEP at this time. Nonetheless, its seems to me that the risk/reward ratio seems more stretched.
        Disclosure: I am not an accounting or business professional of any kind. And SPKEP with its generous QDI dividends could still climb in this yield hungry market.

        1. Tim, I kept my TV on all night because I need to replace it with the manufacturer’s planned obsolescence after a little over 4.5 year of use. CNBC pundits and “invitees” seem to suggest that the government “economists” and officials are betting heavily on the consumers to make all whole. Vanguard has two ETF’s which could be useful to gauge the consumers, always the ones which can move the market, VDE and VCR. VDE (Consumer Staple) has been flat on Morningstar’s limited tracking. VCR (Consumer Discretionary) climbed with 1.4% gain at this time with volumes less than average. VDE has pro forma yield of 2.69% vs VPU (Vanguard Utility) of 2.78%. I have never made any on utility funds before. However, I started buying VPU small quantities. I am thinking if I should buy some more with the proceeds from Spark Energy in my retirement account.

          VCR could be a useful position to gauge how the market react to government’s whimsical plays IMHO.

        2. https://seekingalpha.com/pr/17521874-spark-energy-inc-commences-preferred-stock-share-repurchase-program
          HOUSTON, TX / ACCESSWIRE / May 22, 2019 / Spark Energy, Inc. (SPKE) (“Spark” or the “Company”) (NASDAQ: SPKE), today announced the commencement of a repurchase program (the “Repurchase Program”) of its 8.75% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share (the “Preferred Stock”). The Company may make purchases of Preferred Stock under the Repurchase Program, if any, from the commencement of the program on May 20, 2019 through May 20, 2020, and there is no dollar limit on the amount of Preferred Stock that may be purchased. The Company may make purchases, from time to time, at prevailing prices in open market transactions or in negotiated purchases, subject to market conditions, share prices and other considerations. The Repurchase Program does not obligate the Company to make any repurchases and may be suspended for periods or discontinued at any time. The Company intends to fund the Repurchase Program through available cash balances as well as future operating cash flows.
          “We achieved a strong first quarter to start 2019 and believe this is a good opportunity, given the current trading price of the Preferred Stock being under par value,” said Nathan Kroeker, Spark’s President and Chief Executive Officer. “We have strengthening liquidity and this program will allow us to retire Preferred Stock that has a significantly higher cost of capital than other sources available to us.”…

          1. Haven’t seen any indication of a repurchase yet. Also today is ex-dividend date and at the moment SPEKP is up 0.2%.

                1. Wrong again, I wish I could edit. Better get away from the computer. RQI is 8/20 and SPKEP is 9/30.

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