Monday Morning Kickoff

Well what can be said about last week?  The DJIA fell by about 1400 points, which seems kind of big, but it is only 5 or 6%.  When you have been investing for only 6 or 8 years you think the world is ending–it’s not-this too shall pass.  For an income investor it  has served as a blessing of sorts as the flight to safety has pushed rates down to the low 2.80%’s.

Of course as we knew would happen the Fed raised interest rates, but this had almost nothing to do with any market action.  No rate hike has been more expected than this one–we can move forward without dwelling further on this factor.

Unfortunately another week like this will begin to spill over into income issues regardless of how well interest rates act.  Given that we have no reason to sell any particular issues we own it really doesn’t matter what the stock market does.

So taking a look at interest rates last week we see they traded in a range of 2.80% to 2.94%.  Rates had opened up Wednesday at 2.90% as the Fed Funds rate hike anticipated made a few folks nervous and the rate moved to 2.94% after the rate hike closing Wednesday at 2.91%.  Again rates did not hold the 2.90% level and fell all the way to 2.80% on Thursday as stocks tumbled and while stocks fell further through the day and certainly into Friday the 10 year rate moved higher to 2.85% Friday before closing at 2.83%.

We will be anxious to see who is spouting off this week on tariffs and trade wars since this is the driver of markets for the coming week.  We know the talking heads will be yakking nonstop about it as they fill their airtime–we would suggest the volume be turned way down–we know ours will be.  Please note that we don’t do politics on this site--when you start writing politics it is a no win for writers and readers.  We care about the results of politics–but we know we have to play the hand we are dealt regardless of which political party is dealing.

Last week the average preferred stock and baby bond fell just a bit to $25.14 from $25.17 which to use is pretty more “no change”.  The number of issues trading below $25/share moved to 191 from 190 the week before–definitely a calm week in income issues.

There were 2 income issues priced last week.  Insurer WR Berkley priced a new baby bond issue at 5.70%. We don’t see that this new issue is trading yet.  The company has 3 other issues of baby bonds outstanding and each is trading in the $25 to $25.75 range.

Global container and rail car leasing company CAI International (NYSE:CAI) priced a fixed to floating rate issue at 8.50% which becomes floating rate in 2023 at a rate of 5.82% plus 3 month libor.  We had originally hoped to take a position in this issue, but we have put a hold on that purchase.  After a through review of the companies historical financials we think that a trade war or recession would hurt the company badly.  Here is a chart of the common shares and if you use your mouse you can roll the chart back to 2008 and see the share price around $2.  in 2016 the share price hit a low of $5/share before heading sharply higher to hit $37 in October, 2017 before falling to $21/share most recently.  This is crazy volatility.  We will have full review of CAI International posted sometime Monday.



The new preferred shares began trading Friday under the OTC temporary ticker of CNNLP on the Grey Market and traded at $24.60.

For the coming week we have only 1 item of note on the Economic Calendar.  On Wednesday we have the 3rd reading on 4th quarter GDP and 2.7% is expected.  If this number is realized we should see no reaction from markets.  We have retail and wholesale inventories released on Wednesday and Chicago PMI and Personal Income and Outlays released Thursday.  We would be surprised if this is meaningful.

So with little important economic news to be released and Friday be Good Friday we are likely to see markets pushed around a bit by rumor and speculation.  We may have some modest reactions to any continued White House staff changes–we don’t think these are of consequence, but certainly folks are unsettled with the ongoing drama.

We did add a new investment in the Medium Duration Income Portfolio which we wrote about here.  The new issue is the Invesco 2023 Term Trust which takes us in a new direction as I can’t remember owning a term trust before–at least in recent years.