Tuesday Morning Kickoff

After a booming week last week for common stocks, with the DJIA up over 700 points it will be interesting to see what excitement the coming week brings.

The DJIA traded in a range of 25,009 to 25,883 and closed at the high of 25,883. This based upon the government not shutting down and a potential deal coming soon with China trade. The 10 year treasury traded in a range of 2.64% to 2.71% before closing the week at 2.67%. Seems everyone is convinced that rates have peaked and this 2.60% to 2.70% range is just about right for the time being.

The average preferred stock closed the week at $24.40 as the party goes on as this is up 37 cents in a week. While we thought shares had peaked virtually everything we own continues to creep higher–guess we’ll take the gains, but it is too far, too fast. There are 216 $25/shares preferreds trading at $25 or below compared to 228 last week which reflects continuing march upward. This remains a long way off from the crazy prices last year when we had some weeks with just 70 issues trading at or below $25.

Last week the Fed Balance sheet GREW by $2 billion. The last 4 weeks has seen a runoff of total of $19 billion. Has the FED already started to back off on the ‘runoff’? Who knows, but it is possible–on the other hand we might see a huge runoff in the coming week.

Last week we had the Job Opening and Turnover report come in at 7.3 million which is a strong report. Then we had the Consumer Price Index come in at a flat reading–0 change, although the core rate (without food and energy) came in at a plus .2%–as forecast. Consumer Credit rose for the 18th consecutive month. Subprime auto loans which are seriously delinquent kept rising which shows a little stress–no giant surprise at this point in the economic expansion.  Retail sales for December showed a massive 1.2% drop which of course everyone, upon reflection, decided this must be a bad number–plus it bolsters low interest rates so it must be ‘good news’–it remains to be seen if this was a total fluke.  We do know that we have seen forecasts for the 4th quarter being reduced drastically to as low as 1.5% according to the Atlanta Fed–down from 2.7% the week before.  Their forecast is here.

For the coming week who knows what economic news will be released as numbers continue to be screwed up because of the government shutdown.  Some of the items we may see are housing starts and building permit numbers.  Durable goods orders may be released and existing home sales.

All in all it would appear that retail sales is giving the most dire signal of economic problems.  If the GDP released the end of the month is as dire as the Atlanta Fed forecast common stock prices are too high.

Last week we didn’t have any new issues come to market.  We await trading of the CMS Energy 5.875% baby bonds which was sold 10 days ago, but has not as of yet traded.  We see the issue in the database at eTrade with ticker CMSD, but we show no trading as of yet.  This issue has a maturity in 2079.

44 thoughts on “Tuesday Morning Kickoff”

  1. Many of us here bought easy money NI-B. Their earnings came out today. Right on track. Just cleaning up their short term expenses for having a side business in blowing up towns that was more than projected.
    I sold out at $26.95 and then quickly had a chance to repurchase in $26.30s which I did, and it is back towards $27 again as it approaches 2/21 exD date.

  2. Anybody else catch that Aspen Insurance Holdings has been bought out? SA announced it Friday.

    AHL-PC and AHL-PD will remain issued and outstanding and listed on the NYSE.

    They were bought by funds affiliated with Apollo Global Management. (APO).

    1. This deal was voted on in Aug 2018 and finally consummated. All common shares will be delisted from NYSE. I read nothing about the preferred issues but of course since this buyout is a change of control the preferred issues can also be called in. I have no holdings in any of these issues.

  3. Joel, I did some more playing around with Canadian resets. I tested liquidity of FTRSF today…Bought 600 more shares of FTRSF today at $13.63 it hit instantly. In a separate brokerage I then attempted to sell 500 at $13.63…The sell took 10 minutes but it actually transacted at 13.70. So I didnt lose any money toying around with the sell process. BTW, I am also working in concert with another person who is getting a brokerage to set up an OTC ticker for an issue I want to buy. Once they get it in and first purchase is in, I will then be able to slide in and make my order…That is the plan anyways.

    1. Grid, I followed you in for a new position in FTRSF Fortis and Merrill Edge took the order. Thanks for the idea, Nomad

      1. Nomad, I think in the world of “Uteville” its a nice little hold issue. You will not find a quality ute preferred 6% and under par in US market. Its well over 20% under par from a horrid reset and this yield is loced in until 2023. Fortis has had over 40 consectutive yearly dividend increases on the common, so its track record of perfomance is long standing. They actually own quite a bit of US holdings.

        1. Grid, I did my deep due diligence over the holiday weekend and liked everything I read about Fortis. They have quality conservative management, decades upon decades of dividend increases, great cash flow etc and it was too good a deal to pass up. Really was just a question of which one of their preferreds to invest in. Very surprised the FTRSF is trading so cheaply and this will go into the income vault for many year to come. Thanks again for the excellent idea, Nomad

        2. Hi Grid, I bought 700 shares of FTRSF at $13.70 this morning at TD, the order executed in minutes with their usual commission. I tried to do the same at FIDO, it would not allow me to do it online. I had to call their trading desk, and after a long long wait they tried to charge me $82 for the trade plus some fees for currency exchange ??, I simply told the trader to forget it. Something is wrong with Fidelity.

          1. MFZ, I am convinced TD is the best also in these issues. I just plan on holding these long term, but I to do a little test sell today and it worked fine also. They seem to not want to fleece as my sell price was higher than my floor ask, and my purchases have always been lower than my bid, also. I just have to now see if the dividend payment process goes ok. FTRSF was supposed to pay 2/15. It hasnt paid yet, but I anticipated a few days delay due to them in essence being issued by an investment bank and they will have to pass through.

            1. Hi Gridbird:
              My understanding is that FTRSF is the symbol for Fortis Preferred Series G which is payable on March 1, NOT February 15. February 15 is the ex-dividend date, NOT the payable date. Would it please be possible to lets us know when you receive the dividend what, if any, fees you were charged for the currency conversion etc? I too like “Uteville” provided I can receive 6.xx% QDI on the preferred with a reset.
              Many thanks for all of your excellent advice.
              – Dave

              1. Dave, thanks for correcting me as I had my Utes crossed…It is ERRAF that is payable February 15, (or after). Fortis as you correctly stated just went exD. Same principles apply so I will post on when I get ERRAF which should be soon, as in past references it has been the 15th. I will post on this and the Fortis issue when I recieve them.

                On January 4, 2019, the Board of Directors of Emera Inc. (TSX: EMA) approved quarterly dividends on its common shares and First Preferred Shares, each of which is payable on and after February 15, 2019, to the applicable shareholders of record at the close of business on February 1, 2019, as follows:

                1. Thank you Sir. Your recommendations with Enbridge preferred (US$ denominated) and SCE-L were spot on. You have helped many.
                  Since ERRAF is quoted in US$ are these units previously purchased on the TSX (Canadian $) and offered for purchase/sale on American OTC similar to EBBNF? The price for ERRAF is very close to the TSX price adjusted for the currency conversion.

                  1. Hope we can continue the run, Dave! As far as ERRAF goes, I cant confirm but am highly suspicious like you are referencing that these are actually culled from TSX and filtered through OTC. I notice that Emera common can be bought pink sheets but ERRAF is treated like a toxic grey market penny stock even though it comes from Emera and its higher quality and public accounting. So this means to me they are just being pulled through and someone scalps a few cents on conversion of transaction. Be careful in assumimg dividend has been converted to USD…Some are very inaccurate showing US stock price but CAD dividend which inflates yield. I would suggest always pricing off canandian market and then convert everything including divi by multiplying .75. The currency changes as you know, but it has been hurting Canadian issues lately. Which I am personally fine with buying into a downturn instead of a peak currency wise.

                    1. Thank you Grid. And thank you also for the prompt response. I find these Canadian ute pfd’s interesting.
                      I reside in California. Sorry to hear that you and your girlfriend had a bad experience in Tahoe. Your next one will be better.
                      – Dave

                    2. Thanks, Dave. Tahoe is always great, its old man weather that isnt but he nailed us in MO on trip too. Went to SD for first time over Christmas, we definitely will be back there again, too. I am a long time ute preferred trader, but still admittedly have the diaper on with the Canadian ones. The financial end of these are no concern, but the trading mechanics, taxes, currency issues on some, and potential divi scalping through investment brokerages acting as sponsors if needed are all issues that will be a learning process. I forgot I actually had another Canadian ute go exD Feb. 6 also. So within a few weeks I will have a pretty strong reference point to what happens with many payments coming. The Enbridge preferreds went exD also, so it looks like all my Canadian issues will be cranking out divis to report soon.

                    3. Grid,

                      If you had to choose the best of the SCE preferreds, what would be your preference? SCE-L has the best yield, but you said SCE-C was higher in the stack and I see that the call price is $25.80, not par.

                      I have some funds to invest in a speculative holding, thinking SCE-L would be the one. Funds came from selling AGO-B and putting some of it into more AGO-E, taking a few $$ off the table but giving up a bit of yield. The main reason was to exit the potential cap loss if AGO-B were called. My blended cost basis for AGO-E is now below par, so I can hold it indefinitely without concern.

                    4. Inspbudget, I wish they were all a couple bucks cheaper again so it could be an easy reco either way! :)….It is absolutely mystifying why AGO-B has never been called. Especially in 2013 and 2017. It makes so sense at all. Especially for a spread conscious company like an insurer.
                      Personally risk adjusted, I would try to twist your arm to look at the Fortis Series reset G at ~6%. Look at their conference call that just came out today, its on S.A. They are like Stacys Mom, they got it going on. Look at projected returns and common stock divi increases of 6% going forward for several years. There now 45 consecutive years of common divi increases. You dont have the CA pitfalls either. I am at the point where I am in on C to squeeze the last cap gain blood from the SCE turnip. You look at its long term chart and there still appears for some meat on the bone still. It just traditionally trades a lot lower in yield than the trust preferreds and it isnt and its 15% off its 52 week high and 25% off 5 year high. Unlike the trust preferreds which are nudging back to their 52 week highs. At this point, admittedly with the price runups, I dont know if I would still be in the SCE issues at present yield. It would be a close call.
                      You could buy up to $30,000 in FTRSF or any in combo and not trigger any real tax issues. 30k of Series G would only be a ~$270 withhold which is under the $300 withhold ($600 married). This means its a simple line item credit recapture tax time with no forms to file.

                    5. Thanks for the reply, Grid. I fear that I am encroaching on unfamiliar grounds with Canadian reset issues, attractive as they might be. At my age, I would prefer to keep my affairs as simple and straightforward as possible, and so will do some serious self-deliberation on your rec.

                      I will look at either buying SCE-C, or putting a toe into the Canadian reset waters.

                  2. Dave, I have some feedback for you from TD anyways…I called this morning to inquire about my ERRAF dividend that was to be paid 2/15. They said buying these foreign issues involves a delay in payment of 2-4 weeks. Now ERRAF is the worst trading area (not company quality) being it is true grey market issue. Fortis and others are pink sheets so they may be received quicker. Just speculation though. I will find out soon as CDUTF, EBBNF, EBRGF, and FTRSF have all went exD too, so in a month or so, I should have full clarity.

                    1. Gridbird, I noticed 800 shares of ERRAF sold today and 770 of FTRSF. Where getting some of that?

                    2. Grid, I talked to the Schwab tax desk today about the Canadian issues. They sent me a form to fill out specific to the Canadian tax treaty. They said as long as I fill out one form for each account in which I have Canadian securities, the Canadian tax will not be withheld, both for IRAs and taxable accounts. From what I have read I am a little suspicious that it will work for the taxable accounts, but it should for the IRA.

                    3. I can’t reply directly to Alan’s comment, don’t know why, but it needs several corrections. Under the tax treaty with Canada, they agree to take only 15% tax instead of the actual Canadian rate of 25%. This is why you fill out the form with Schwab. I have some Canadian bank common shares in my taxable Schwab account, I filled out the form when I first bought Canadian shares in the account, and 15% tax for Canada has always been withheld and properly reported on my 1099 as foreign tax paid.

                      Also per the tax treaty, NO tax is withheld in IRA’s. There has been no form required by Fidelity about this, but I’m in the process of transferring my IRA to Schwab so I will double check with them on this point.

                    4. Mikeo, I bought an additional 400 more ERRAF myself today. Im putting it on equal sock drawer status with Fortis G. They got their act together and though current yield is a tad below G its kicker is 40 bps or so higher on resets.
                      Alan, my knowledge supports Larrys thoughts. But, I must admit I am a bit blase’ about the issue. They can take it all as far as I am concerned as long as I can file to reclaim it. I owe too much money on my taxes with cap gains and dividends anymore, so this can just help offset the amount of the check I will have to write Uncle Sam.

                    5. Thanks for the clarification, Larry. I was pretty sure about the IRA being taken care of with the Schwab form, but am glad to have the handling of the taxable account cleared up.

          1. Nomad, you may want to look and study a preferred from Emera who also has extensive utes in US. I own a slug of ERRAF. This one has a bit smaller yield that FTRSF but has about 50 basis more in kicker firepower. So it will have that added heft to next reset. Emera today just reported record EPS and record cash flow.

            1. Grid, sadly I get blocked at Merrill Edge and Vanguard from buying ERRAF. I spoke with Vanguard and they said no one can buy it there and ME told me they would work on getting the trade done (that was Friday and no call back). Unfortunately, I am out of options as my other brokers are just municipal bond houses and hedge funds. Thanks for the tip though my friend, Nomad

              1. Nomad, the randomness is insane. I bought ERRAF twice from TD with very quick transactions both online. Months ago I met your same fate with Vanguard about ERRAF and gave up until I recently figured out TD would trade it. Yet the Altagas, Canadian Utilities LTD, and Fortis preferreds are tradeable on Vanguard.

    2. Gbird and others, Worked this morn for about an hour on a major screening list of CNs. Prep work. Still had a bath project on cue and got all the tile up. Just like having a job. Worked on Resets only with IG. Found 19 IG companies with a total of an even 100 Reset issues total. That is Resets only , there are many Fixed and a few other strays like USD payouts. Stopped there. Thinking of applying a ladder with the Resets, five issues as a place to start.
      I am following five issues that have been mentioned here frequently and have used them to begin to develop a system of analysis that I feel I need to make decisions from. The details I have found on these five have been insightful to my process of decision. My resources for quotes and daily trade info is not there yet on these CNs, actually kind of poor.
      I do see value in the CNs. Will need more time at my desk to just focus and break through. Like to hear the execution details from posters here. Will be interested to hear about sells and stop which should perform okay.
      Today, I my accounts actually had some sell limits hit and may move a couple out as there is chasing feeling in the market here to me. I think the CNs will find some of the funds.
      Appreciate the comradery here at Innovative. Multitasking hit me this week, JA

      1. Joel,
        Here is another link to the complete list of all issues in “CANADIAN PREFERRED SHARES REPORT” dated back to August 2018. It has a lot of good info (credit rating, reset rate, maturity,…) and a breakdown of all types of preferred shares.

        In the section “US$ Pay Canadian Preferred Shares” at the bottom you can find list of preferreds issued in USD. Not all of them are on OTC.

        1. GB and LYR, Found those two days ago and great pieces. Seek and ye shall find. Using TMX abandoned BNN Canada (slow adverts) for info, and feeling some details by inference. It will open up.
          Lastly, found a few Euro prefs that trade too, known names. If there is a first fall into a larger selloff in Europe there these may be worth watching for a downdraft.
          Need a clone! JA

          1. Joel, yields are so much lower in Europe…What is general yeild of higher quality preferreds across the pond?

  4. Good morning Tim…one set of numbers I’m keeping an eye on is the default rate on student loans (trending toward 40% ) as well as the overall amount of student loan default (trending toward 200 billion). While student loan debt remains fairly static as a percentage of overall consumer debt, this is a very unhealthy long term consumer trend.

    1. Assuming a service recommendation. I own CMRE-E so happy. PFF had been selling and is now done.

      1. Thanks. Have had a few of their preferreds for a few years now and so far so good. Grabbed a few more other-industry preferreds during the PFF offload but not as much as I would have liked.

        1. TNP-E and TNP-F look like a good opportunity if you can stomach the risk. I am not as fond of TNP as CMRE but if I can flip I will flip. PFF still unloading though, think it had between 7.5 and 8 million bucks left between the 2 issues as of Friday.

          1. Thanks for the info. I had a good amount of TNP-E in my IRA last year at Fido but the UBTI issue was too unpredictable so I dumped it. Fido is charging $200, I believe I remember, to file the appropriate tax forms if over UBTI is over $1000. And TNP is a tad too much risk to add to my portfolio at this point.

            1. Pretty sure TNP is not a K-1. You may be thinking of TGP and even that does not issue a K-1 as of 1/1/19.

              1. Yeah, I think you’re right. It was one of the T??’s. Hard to keep track of the Tsakos securities.

                1. Well it looks like a ton of people thinking the same thing. Assuming SA Reco coming. PFF Rebalance, the gift that keeps on giving.

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