Monday Morning Kickoff

Here we go with what is sure to be an exciting week. We have a Federal Open Market Committee (FOMC) wrapping up on Wednesday with what is likely to be a 1/4% cut in the Fed Funds interest rate. Additionally we have the October employment report on Friday which always have the potential to move markets.

Last week the S&P500 moved in a range of 2991 to 3027 before finally closing the week at 3023–up 1% for the week. The 10 year treasury moved in a range of 1.73% to 1.84% closing near the highs on Friday.

The Fed balance sheet moved up only $2 billion last week–so the slowest growth we have seen since early September, although given their recent actions we should expect further building in assets.

Last week we had a couple of new preferred issues announced.

Citizens Financial Group (CFG) sold a new perpetual preferred with a coupon of 5%. The issue is trading with a OTC ticker of CFGZL and shares closed at $25.15 last week. The issue is non cumulative, but qualified.

PS business Parks (PSB) sold a new perpetual preferred with a meager coupon of 4.875% and shares are trading under OTC ticker PSPBZ and last traded at $25.18. The issue is cumulative and non qualified.

Additionally the Priority Income Fund (nontraded) registered a new issue of term preferred stock, but nothing beyond the initial registration is known at this point in time. This is typical for Priority and we will be looked for an actual sale in the next week or two.

17 thoughts on “Monday Morning Kickoff”

      1. If you prefer–that is about would I have guessed (or even 4.75%) for this quality.

    1. It is available at Schwab. You will probably have to call, but they should waive the fees. I bought it and then sold it with Schwab last Friday for a little flip.

      Their systems have a hard time with any issue that has more than 4 characters in its symbol and ends in a Z (I kid you not – there are a couple of other letters that also cause problems, but I can’t recall what they are). If you want to see an example, go search NGHCZ on Schwab. The system will tell you it is a mutual fund (it is a preferred from NGHC).

      1. At Schwab most new issues can only be traded by logging in to the main site and going to the trade tab, not on their StreetSmartEdge program. Or of course, calling a hooman.

  1. Of interest for
    Operating in the red isn’t uncommon for Uncle Sam – 54 of the last 59 fiscal years, i.e., 1961-2019, have resulted in an operating deficit. The only surplus years were 1969, 1998, 1999, 2000 and 2001. To change this pattern, the United States must either raise taxes (unpopular) or reduce spending (also unpopular). Our spending is however concentrated: 62% of the $4.45 trillion of total 2019 outlays went to just 4 categories – Social Security ($1.044 trillion), National Defense ($688 billion), Medicare ($651 billion) and Net Interest Expense ($376 billion) (source: Treasury Department).
    “Debt, we’ve learned, is the match that lights the fire of every crisis. Every crisis has its own set of villains – pick your favorite: bankers, regulators, central bankers, politicians, overzealous consumers, credit rating agencies – but all require one similar ingredient to create a true crisis: too much leverage.”
    Andrew Ross Sorkin
    All the very best, Debt Free Nomad

    1. Nomadicmist,
      Thank you for your comment and the US Debt Website. The site also compares debt from around the world. Very interesting.

      Was just discussing with my brother in-law my concern regarding corporate debt and a sooner or later recession.

      I too always have and still live debt free.

      Leslie Joy

    2. While not a huge Ray Dalio fan (Bridgewater Associates), you cannot argue with the results. Here is an excerpt from his Big Debt article.

      “because credit creates both spending power and debt, whether or not more credit is desirable depends on whether the borrowed money is used productively enough to generate sufficient income to service the debt.”

      His assertion, with which I agree, is that credit is good as long as it is used to create opportunities to be more productive, add value to the economic cycle and service the debt at the same time.

      The ability of government to borrow money endlessly and create systemic debt is what hurts the overall economy as the debt service ultimately competes for the borrowed dollar.

  2. Bought some of PSPBZ today at $25.0x. Thanks to the posts about it here (not yet available to buy at Schwab or IBKR!)

    Even though it carries a mere 4.875% coupon I think it is likely to appreciate to mid-$25s based on the other low coupon PSB preferreds.

  3. I think I’ve rarely seen a market so perfectly priced like this. Weeks of rising prices just because the first almost meaningless piece of paper of the truce between US and China seems ready. In the good old times when there was a real market, not dominated by liquidity and Central Banks, news like these would have been sold many many times. Today seems the opposite. I don’t know how even the so-called flash crashes have disappeared!

    1. kapil-certainly more supply than before the reopening. As long as it remains steady I am holding–just noted I am down 2 cents/share. The next ex date will be around 12/12 so I hope we see it rising into the ex date and then I can make a decision as to whether to hold through the ex or let it go—only 6 weeks ago it hit 26 and now at 24.82 would seen to be one ripe for some gains when the supply gets down in that 1000 shares a day range instead of 5,000-10,000/day.

  4. Is the rate cut a certainty? The FED doesn’t want to cut rates and the previous cut was supposed to be their final cut for the year. Of course things happen to force their hand. A non-cut would trigger a short term panic crash.

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