Stock Market Flys While Income Issues Creep Higher

We see that the DJIA is up by 350 points as we write this note–we are back into a “all news is good news” phase.  The equity markets are flying based upon a potential China trade deal–forget that part of the government is shut down and that Consumer Sentiment fell by a fairly large amount.

Consumer Sentiment, which we believe is one of the most important economic indicators, fell to a reading of 90.7 from a previous reading of 98.3 and expectations for a reading of 97.5.  We have to always remember that the consumer drives 2/3rds of the economy and the longer the government shutdown remains in place the lower the reading on sentiment will go.  At some point in time (I have no idea what that time frame is) you can pummel consumers back into their ‘economic hole’.  Our best guess on this whole situation is that the TSA employees will finally tire of their situation and will decide to shut down the nations airways–we’ll then have action–quick.

Interest rates are up a couple tics today–oh well, this is not a factor to be concerned with now–it is simply too low to matter.  We would be more concerned if rates began falling a bunch now as it would reflect substantial economic weakness.

There are virtually no new lows in baby bonds and preferred stocks on the ‘near new lows’ list.  We show a Seaspan and Scorpio Bulker baby bonds trading around par (and showing up as new lows) as they are near redemption so are locked into the $25 area.  The 3.50% Kayne Anderson MLP term preferred is showing up on the near new low sheet as it will trade right around $25 as it moves closer to a 2020 mandatory redemption.

We seem the new 8% issue from Chimera Investment is trading at $24.70 while the new JPMorgan Chase 6% issue is trading right at $24.99.  We see the Chimera issue having maybe 30 cents of upside in it for the next month while the JPM issue will trade a little higher (10 or 20 cents)–most of the currently outstanding JPM issues are trading around 5.95%.

28 thoughts on “Stock Market Flys While Income Issues Creep Higher”

  1. Good Sunday morning! Who’s ready for some football!?! Oops, sorry, wrong forum . . . 😉

    So anyone care to hazard a guess on the direction of income securities this coming week? Up, down, or sideways? Seems to me that the bounce off the end-of-the-year lows might drop back into a buy zone on a few more issues. I’ve also noticed what occurs to this noobie as a price trend — investors in IG level preferreds or ETDs appear to want a return of around 6% and price accordingly, unless they are sock drawer level securities where 5% seems acceptable. You folks probably have known that for ages.

    Have a great week!

      1. Nomad, I dont think its the debt that is the most scary…Its the current annual budget deficits that need addressed immediately (but wont). Current GDP is over 19 trillion with a $22 trillion debt… That is doable. I many a year had a 100k salary and had mortage and CC debt over 200k and serviced it quite easily without any issues. Its the yearly budget deficits that are alarming…Ok, and all the unfunded liabilities in the trillions too that are a problem…Nevermind, I admit we got big time problems ahead if it isnt addressed…How the heck did we have Federal budget surpluses 20 years ago? We need to find that 1999 budget and look at it!

        1. Grid, I guess we can all agree that there is way too much debt in this country; both personal and federally. The US Dollar printing presses just keep working overtime and we will never actually “pay-off” this enormous US debt. Will King Dollar become worth less and less (a wheelbarrow of cash for your loaf of bread)
          I own a good chunk of precious metals (been buying each year for decades) and encourage each of you to do your own deep due diligence. Wishing you profitable investing, Nomad

          1. I certainly dont fault any precious metal investment as part of ones portfolio. I am just not “there yet” to do it myself. Now, if I could buy a male and female bar of gold and put them under the sheets and they produce me annually little 6% gold bars, I would be all in! 🙂

            1. Grid, everyone has to choose/determine their level of risk and exactly what type of Dollar risk they are willing to take to get that “reward”. I view precious metal as just an insurance policy against catastrophe events and not what their immediate return is. Last year was a great example; everything was going higher (everyone but the shorts were happy) until late in the 4th quarter when the Fed decided to take away the punch bowl. If you look at the numbers you will see gold finished higher as the number 2 asset class and most investment areas finished lower. Most investors can not afford the risk they take and are not prepared for another 2008-2009 disaster. The volatility for most equities and preferreds is much higher than metal. I am certainly NOT recommending ANYTHING to ANYONE and only am interested in all that are reading this understand completely what they own and it’s downside. Smile, Nomad

              1. Nomad, we have talked enough, that you know that I know, you have a well rounded and balanced investment portfolio, and precious metals by all accounts normal financial experts recomend as a portion also….But I would bet you would be flabbergasted at what my cousin did. He got burned in a couple bad stock years back in early 2000s and 2008-09. He just recently told me since then everything he has bought since for his retirement is precious metals. I dont know who bent his ear to lose his money on stocks and who bent it to go all in on precious metals….But he is the perfect example of why pensions are needed!

                1. Ouch! I truly am sorry for him as he is going down a very bad investment path IMHO. There are many many in the “investment” world that push people into metals with these wild and reckless ideas that the world economies are going to immediately fail AND the only thing that will save them is precious metals. Usually, it’s the people that are selling the metals for US GREEN (mostly) 💵 dollars. I wish I could speak with him and tell him to diversify and never put all your eggs in one investment class…

                2. But he is the perfect example of why pensions are needed!

                  I might add the word “funded” in there. There are a number of articles detailing the pension fiasco cliff that is rapidly approaching. I do not think unfunded state, local, and private pension liabilities are included in the debt totals.

                1. Yes, Mikeo, I need that income generation produced somehow, lol. I am a pensioner and it protected me from a lot of dumb things I wasted money on in my younger days. Fortunately its a well funded pension. And damn well better be as 14.5% was withdrawn from my check monthly and matched the same amount by employer.

  2. I would’ve never ventured to buy or add to my pref shares during the Dec meltdown without the info shared here. Much gratitude to all on this site for instilling confidence in us newbies.

    Now I am up nicely on several shares, some like SPKEP are up 23% total return. I am not much of a trader and my initial plan was to buy and collect the distributions. Though some market pundits think there will be a retest of the Dec lows. Now I am wondering whether pref shares Dec lows were an exceptional dip and more resilient to another down draft, especially with Powell’s recent dovish talk and the likelihood he’s done or taking a pause on rising rates. This should bode well for the pref shares, right?

    1. Hi Jay…if you’ve got a 23% gain in SPKEP for a short holding period, it might make sense to take some money off the table. There’s no telling when the market turns over again and SPKEP has shown itself to be susceptible to downturns.

      1. Thanks CW. I think you’re right it’s quite a move in just few days. It’s self-reassuring when the market is going our way. I’ll trim some of these positions come Tuesday.

  3. No complaints here. “creep” Is exactly what I want from my preferreds. I use them in my IRA to cover living expenses in retirement in place of CDs or even bonds for reasons of yield. I maintain a separate stock account for excitement. From my preferreds, a nice boring predictable “creep” suits me just fine.

  4. Looks like some big institution does its annual balancing on Jan. 19 for PSB-Y. Crazy volume.

  5. Tim, I do wish the new JPM issue was trading at $24.99 as you wrote. I have an order at $25 even since the trading day began, and it is still sitting there.

    I’m contemplating upping the bid.

    1. Ha–I glanced at the price just when 1 trade went through at 24.99–but I see that mostly is at the 25.15 area. If I were you I wouldn’t chase–they have 3 issues around 6% current yield with a couple years til potential redemption

    2. JPEEL is trading well below BAC-A – B & C, so if you are looking for a flip there are better choices. If you are looking for yield, this is a quality bank at a decent price.

  6. I will celebrate only when GLOPs issues come back close to par. Still unable to understand why/how they did fall so hard and still trading far from the prices that looked fair regardless the level (actual and expected) of interest rates. Since the situation of the sector changed for the better in the meantime and these are bonds, they should trade higher not lower vs Q318.

  7. I have to take some profits here. I went from being -6.5% on X-mas eve to +4% ! I would like to hold and watch the distributions roll in, but it’s ok to book profits in such a short amount of time. At least that’s what I’m trying to learn. Especially with the current unknowns out there.

    Good day

    1. I’m also selling a few of my first positions that were, shall we say, less that stellar. Might as well exit them with a 5% profit and put it to better or more secure use.

    2. Tech guy–yes it is ok to do that – at least if you get the proceeds in money market until redeployment you can get 2.3%

      1. Or 2.47% from vmmxx @ vanguard…..

        Techguy: a huge swing from -6.5% to +4%!
        I also like to take profits fast @ about +5% and don’t mind waiting with vmmxx or with 1 year treasuries paying 2.6% (especially if u have a taxable acct. in a state with taxes)
        my port. only changed 1-2% down then up. I guess I am too conservative with most term preferreds and avoiding float and perpetuals

        1. I’m not a total ETD/Preferred investor, and I was only 70% invested when the last week of Dec. came around. Instead of selling the lows, like I seemed to have a habit of, I jumped in.
          The market looks quite strong, I probably sold too soon. Well, money in the bank is better than looking at a big red negative .

Leave a Reply

Your email address will not be published. Required fields are marked *