Tuesday Morning Kickoff

After a long, very cold weekend, we are ready to get back to more normal activity which includes getting stock markets reopened and seeing what type of week the markets will bring us all.

Last week the DJIA traded in a range of 23,765 to 24,750 closing the week at 24,706. Most of the week was relatively quiet until Thursday/Friday when various rumors began to fly around relative to Chinese trade negotiations–not that any trade negotiations are now being held-but what the hell let’s trade on some rumors for the future meetings to be held later in the month. It seems to us that market players have been looking through rose colored glasses and this is subject to change at any moment.

The 10 year treasury opened the week at 2.67% and slowly crept higher to 2.80%, before closing the week at 2.78%. These rates likely had little to do with any income security pricing last week because virtually no one is paying attention to interest rate levels–they won’t be important until someone decides they are important and only God would know when that might occur.

So for last week we had quite a few economic releases in spite of the partial government shut down. Last Tuesday we had Producer Prices (PPI) released and they came in softer than forecast at a -.2% (versus forecast of -.1%). Also on Tuesday the Empire State Manufacturing index was released at a weak 3.9 versus a reading of 11.5 in December. Wednesday we had import prices released at a -1% versus -1.9% last month. Also Wednesday we saw the Home Builders Index released just a shade higher than last month (58 versus 56)–one of the few housing related numbers that has been on the positive side of things in quite some time. Thursday we had the Philly Fed Index released at a strong 17 versus 9 the month before. Friday saw Industrial Production and Capacity Utilization released at slight stronger rates than readings from last month, while Consumer Sentiment kind of fell off a cliff to 90.7 versus a forecast of 97.5–poor stock markets and the partial government shutdown are starting to bite into the consumer psyche.

For the coming week economic releases are fairly small in number. Tuesday we have Existing Home Sales being released–the forecast is for 5.1 million units being sold against 5.32 million last month. On Thursday we have the PMI manufacturing report and PMI services report and Leading Economic Indicators. Friday we may have Durable Goods orders being announced (could be delayed government shutdown) and New Home Sales.

Last week the Fed balance sheet fell by about $6 billion after falling $2 billion the previous week.

We had 3 new income issues announced last week which was the busiest week in well over a month.

mREIT Chimera (NYSE:CIM) announced a 8% fixed-to-floating rate preferred. The issue is trading on the OTC Grey market under the temporary ticker of CMIMP and closed last Friday at $24.75. This issue is unrated.

JPMorgan Chase (NYSE:JPM) sold a 6% non cumulative preferred issue from which we believe the proceeds will be used to redeem the JPM-B 6.70% issue which becomes redeemable 3/1/2019. The new issue is trading under the temporary ticker JPEEL on the OTC Grey Market and closed Friday at $25.21. This is an investment grade issue.

Lastly battery maker Energizer Holdings (NYSE:ENR) sold a $100/share mandatory convertible preferred with a coupon of 7.5%–the issue will convert to common shares in 2022. The issue is trading on the OTC Grey market under ticker ENRXP and closed on Friday at $103.00.

The average $25/share preferred stock last gained 5 cents to $23.67–back to more normal gains and losses compared to the prior 4-6 weeks during which we saw average moves of up to 88 cents in a single week. There are now 255 issues trading at $25/share or less.

3 thoughts on “Tuesday Morning Kickoff”

  1. Continuing some of the weekend discussion regarding US gov debt. 2018 fiscal year ending 9-30, official budget deficit was around 800 B. Treasury sold 1.3 T of debt. About 500 B of “off budget” spending accounts for the difference. This is not accounting for the off balance sheet liabilities (promises to pay & guarantees).
    Jeffrey Gundlach said on CNBC that the treasury will need to sell 2 T of debt this fiscal year (2019). Since the estimate for 2019 total tax revenue excluding employment taxes (medicare, social security, etc) is about 2.5 T the federal gov will be borrowing 45 cents of every dollar it spends this year. Wikipedia says total US sovereign debt is around 22 T. Growing like a weed.
    Unsustainable? Yes but it cold take a long, long time. What is the impact on us as fixed income investors? Not clear to me…
    Happy Tuesday…

  2. Some of the bigger companies reporting earnings today are Johnson and Johnson, IBM, Swiss bank UBS, Travelers Insurance, and Haliburton.

    1. Stanley Black & Decker (SWK ) took a tumble today (-15%) after beating estimates on revenue, but guiding lower in its forecast for 2019. This looks like an over reaction, but it may also be indicative of how skittish the market has become toward anything less than stellar news.

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