Strong Economic Data Releases Soothes Markets

While we have seen wild recession fears the last couple of days this morning the U.S data releases have been strong.

This morning retail sales were released at up .7%—against a forecast of up.3%. Taking out autos sales were up 1% against a .2% forecast.

The Philly Fed manufacturing index was at 16.8 against a forecast of 10, while the New York empire state manufacturing index was at 4.8 against a forecast of 3.

Of course by now everyone has seen the Walmart sales numbers and profits—stellar—“party on Garth” (and Walmart).

After the release of this data the 30 year treasury popped back over 2% after falling below 2% for the first time in history.

While the above may serve to sooth the markets for now we know that if we get a number of days like yesterday where the DJIA plunges it will be trumpeted across the news continually–consumer confidence can be shattered as they look at their 40lK statements and recession can become a self fulfilling prophecy. We need to watch consumer confidence numbers in the months ahead.

We fully expect markets–interest rates and equity markets to gyrate – up and down for the next week — at least.

Also we are on the watch for the redemption of many, many baby bonds and preferred stock issues as companies rush to lock in long term coupons at extraordinarily low rates. Obviously we can’t react until these redemptions happen, but we will survive, albeit at lower coupons.

25 thoughts on “Strong Economic Data Releases Soothes Markets”

  1. Add KIM-K and KIM-I to your list of Preferred Stocks being called.
    BY Business Wire
    — 4:19 PM ET 08/15/2019

    – Company Announces the Full Redemption of its $175 Million 6.000% Class I Cumulative Redeemable Preferred Stock and its $175 Million 5.625% Class K Cumulative Redeemable Preferred Stock

    1. The real story is the price Kimco got for their Baa1/BBB+ note due 2049… Priced at 3.70% due 10/1/49 @ 3.765%…. Yikes!

  2. Tim, how safe do think KYN-F is to park a relatively large amount of cash until its called in April 2020? I’m thinking of it kind of like a 8 month CD paying over 3%, which is pretty good if you think it very safe.

    1. Leonard–I was as high as 2000 shares and then dropped back to 1000 when I could unload at 25.20 ish—bought another 300 the other day so am back to 1,300—a very large position for me–I sleep like a baby with it. Their leverage is covered about 3 times right now (as of 5/31/2019) The fund could do very poorly if energy plunges more–but the leverage coverage is rock solid.

      1. Tim – thanks for the input. I picked up 600 today for a total of around 1400, and I may add some more since I’ve been selling most of my preferreds and BBs at these nice prices of late. I figure even if the market crashes KYN-F will hang close to par due to its early mandatory call date, and then I’m keeping the main cash ammo in GABXX for rapid deployment if and when we get some better buying opportunities in the preferreds and BBs.

  3. Maybe when yield curve steepens now because short rates go down and not long up. Maybe means the Fed starts cutting short end. Maybe won’t help. Maybe helps and just party on. Maybe big kablooey. Maybe not. This will take some time to know but this is very exciting to watch. IG fixed income smoke coming out of my computer for today that’s all I know. Well lawdy lawdy miss clawdy NRUC $27.78 JPM-C $27.98.

    1. SteveA–I agree–you have to look globally. For 2-3 years now equities have been driven higher in spite of the global softness. Now we are starting to see that both interest rates and equities are starting to understand (accept) that the U.S. can not ‘go it alone’ in the long term.

      1. Tim, I think I need a scorecard. I remember way back, like a week ago, when bad news was good news. That meant the Fed was going to cut rates, and equity prices would stay high. But now, good news is good news. Strong CPI yesterday, good retail sales today. So now I guess we think the economy may not be slowing down, but the Fed will still cut rates, and everything will be fine. This can get a tad confusing.

      2. Here’s what Mark Grant wrote just today:

        ‘…it is the “Bewitching Season” for borrowers as anything and everything is going to come down in yield and be re-financed.’

        So…if it’s callable, apparently, we need to watch out…

      3. I fear Jay Powell has no credibility which does NOT help. His stated desire to potentially overshoot rate hikes when we were the only country raising them at a consistent pace cannot have helped the markets believe in his judgment. Then the suspension of unwinding the balance sheet with record low-interest rates is puzzling.

        I am not a great believer in academics but I do strongly believe the Fed needs to be managed by a solid mainstream economist.

        1. Don’t like a former VC guy running the Fed? Couldn’t agree more. Powell is ill-suited for lies ahead. Where’s Bernanke when you need him?

    2. Agree. Europe will need to stimulate their economies quick as lower rates through the ECB probably will have little effect now. Now, how does the EU provide fiscal stimulus is the question. Can a country go it alone, like Germany who is falling into recession right now?

      Lower rates may be the name of the game from here on out.

    3. Play YOUR game…a theme I have liked about this site since I found it. If something works, share it, someone may adopt a sliver of experience from you. Then vise versa.. (which means ‘never drink new wine’ or some such?!)

  4. Like Gary H., I would like to know what everyone’s doing with PBB. Any serious call risk at this point? Thx

  5. Hello all,

    Curious, has anyone thought of taking profits in WFC-L? I know it’s a sock drawer issue but the gains are very tempting.

    Thanks

  6. Thanks Tim
    Tim and group
    I am holding PBB 6.25% which was callable 12/15/18, do you think this will get called anytime soon ?
    Same on HCAPZ 6.125% callable on 9/15/19 ?
    and GECCL 6.5% callable on 9/18/19 ?
    Thanks

    1. Gary Hargreaves—I think GECCL is the least likely to be called because Great Elm is a bit of a dicey company and may well not be able to capitalize on lower rates. Additionally there is only about 10 cents of call risk in it for the investor (assuming a 30 day notice).

      I would be a bit more concerned with Harvest Capital, but they would have to issue down around 5.625% to make it worthwhile. Being a decent company they probably could do it. the issue is trading at 25.65 and a call on 9/15 would ding you about 30 cents.

      The Prospect Capital issue would need around 5.75% to call and it could certainly happen. There is no doubt they have the ability to call it as they have really good access to capital markets. Not a well run company, but just the same they could do it. Like the Harvest Capital issue you would have about 30 cents of call risk with a 30 day notice.

      In the end if I held any of these I would likely ‘let them ride’–unless they go higher — at 26 I would probably exit. Just no where else to go and the potential call will keep the price around $25.

      1. Thanks Tim
        appreciate your thoughts…
        Pretty much matches my thinking. Only thing to add for others is that I calculate the potential “loss due to call” per share (like Tim did) and then multipy by the number of shares I hold. $.30 loss x 300 = $90 looks and feels different than $.30 loss x 2000 = $600. Position size matters too.

    2. I received a notice today from Fidelity that the Prospect 5.00% bonds due 3-15-2022 are being fully called.

      1. Thanks Gary. I see they have tendered for $60 million of 4.75 senior convertible notes due 2020 also.

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