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Party on Garth!!

We’re seeing a substantial rally in treasury bonds and equity markets today–I think based either on the Bank of England moves to QE or maybe just a lot of FOMO with folks with lots of money in their accounts. No one want to miss a bottom (not that this the bottom, but no one knows).

The S&P500 is up 1.47% at this moment and the 10 year treasury yield is down 20 basis points. I’m just watching for now–can’t get too excited in a one day move.

I have minimal amounts of ‘pure cash’ in my accounts now after deploying some into short maturity CD’s and Tbills – of course the Tbills are readily sources of cash.

My accounts are up today, but only by a few steak dinners–not real ‘party’ money.

15 thoughts on “Party on Garth!!”

  1. Not sure where to post this, but does anyone know why the PSBs are trading at dumpster fire levels?

    1. Daddy- PSB was purchased by Blackstone and has gone private. The Preferreds will be downgraded. Schwab currently shows them as not rated.

      There is a risk of them eventually going to the Expert market.

      Per Blackstone “PSB’s three outstanding series of preferred stock, and associated depositary shares, will remain outstanding in accordance with their terms following the closing. We currently intend to continue to have the depositary shares representing our preferred stock listed on the NYSE with public reporting so long as there is at least $75 million aggregate liquidation value of preferred stock outstanding.”

      With so many questions/risks, I guess they are being dumped. There have been a lot of discussions on the site earlier this year if you search.

      Hope this helps.

      1. Fryman, “currently INTEND to… be listed on NYSE”. That is the part that concerns me as that was exactly what Amtrust said, after they went private, lol.

        1. Grid – Noted. These days my trust level is low. I keep looking at them, but don’t need any more headaches. Thanks.

      2. While what you noted is factually correct, I have to take exception to one comment because I have seen it mentioned now a number of times whenever a company is acquired.

        “There is a risk of them eventually going to the Expert market.’

        Not to pick on you because I have seen this comment on other acquisitions.
        Come on people – not every acquisition means the preferreds are going to the expert market. Actually it is only the rare cases when they would. I think some people have developed this irrational fear now in any acquisition that the preferreds will go to the expert market when that is not the case

        In PSB’s specific case, Blackstone has publicly stated they will continue to have the depositary shares representing their preferred stock listed on the NYSE with public reporting so long as there is at least $75 million aggregate liquidation value of preferred stock outstanding. So given the large $ amount of PSB preferreds out there, the likelihood of them going to the expert market anytime soon is slim to none, and slim left the building

        Now if they issue calls for them or tender offers, one needs to pay closer attention but right now it is a non issue IMO

        1. But they would still be called at $25 though correct? Seems like one would be hoping that these get called.

  2. Nice to see green on the screen

    Mainly sitting on my hands today after making buys in the sea of red the past week

    Only bought MBINM early today at Fidelity after the one day delay
    and my last short term US Treasury to fill out my ladder – this one a US Treasury Notes 0.125% coupon due 5/31/23 @ 97.464 with a YTM 4.049%.

  3. Folks,
    What do you think about Muni’s here? MUC is >6% and near relative 20 year lows (not counting a few months in 2008/09). I’d take 6% tax free (FED and CA in this case) all day. Even with a divi cut, I’d take 5%.

    1. RickS,
      MUC is beginning to draw my attention too. In addition to being at such lows, it is trading with an almost 10% discount from NAV. My only reservation is that with another rise in interest rates, MUC can easily drop in price 10-20% further.
      Having said that, individual relatively short term (i.e. <5-10 year) muni bonds, aimed to be held until maturity may be an alternative, if you do not care about their price fluctuations until maturity. But then you are not benefiting from MUC's 10% discount over NAV.
      What do you think?

    2. I have been buying individual muni bonds this week. I hold them to maturity. Right now I am getting just about 5%. I live in a high tax state as well so this is about as good as I have seen in years.

      BTW I found this is a good site to see how the prices are doing over time state by state.
      https://www.spglobal.com/spdji/en/
      Just type in your state in the search box.

    3. Rick, MUC has a duration of 15 years. Which means for every 1% increase in rates, it should lose about 15% of principal. YTD, it is down 26% on a total return basis and 29% on price alone. Before I would buy it, I would want a strong belief that interest rates have stopped rising. If they continue rising like they have so far this year, MUC will continue to be in a world of pain.

      My highest probability forecast is you would come out ahead putting you money in a “mayonnaise jar on Funk and Wagnalls’ porch” versus buying MUC today. I expect you will lose more on principal than you would gain on muni interest.

      Obviously I might be 100% wrong on this. . .

      1. Thanks for the info Tex. I was just looking at the math for 40% leverage and have to agree – this could get more ugly. The dice roll is guessing at when rates top out or are perceived to have.

        MUC performed well during rate hikes of the early 2000s, but are there other system inputs here? CA has flush with cash and is not issuing as many bonds. I’m sure this will not last (I’m confident the excess will get spent), but I think I’ll wait for leveraged CEFs until at least mid-Oct. The muni market has been crushed, and I think the cycle may turn. Bias feedback below…
        https://www.schwab.com/learn/story/2022-mid-year-muni-market-outlook

        $0.02…IG (or just below) corporate debt looks more attractive here, and I’ve added positions per the previous posts. Perversely, I’d love another 10% down, and I’d add much more. Thanks to all – other opinions welcome.

        1. Rick, I should have also mentioned that MUC is going to have much higher costs for their 40% leverage going forward. They reported an interest charge of 0.49% of net assets. That is going to climb to maybe 1.49%, call it 1% higher. That will make their net earnings drop by that amount, so they will ever a) lower the monthly payout and/or b) return some capital every month. Which will lower the NAV further. Even if long term rates stop going up, this increase in short term rates will affect MUC.

          Same thing is going to happen to all leveraged funds, so MUC is not alone in this issue. I am talking about you, MREITS. Except for them it will be much worse with their 5X to 10X leverage.

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