After New York Fed’s William Dudley scared off Tuesday traders with a hawkish interest rate take, Fed officially on the fence in August-released FOMC minutes. Meanwhile, more than 50 Shades of Grey seem to exist in the OTC Grey Market these days.
WASHINGTON, August 17, 2016 – As we near the 3 p.m. hour in Wednesday trading action, Wall Street is still trying to digest today’s 2 p.m. (EDT) release of the Federal Reserve’s latest minutes, which seem to indicate the nation’s central bank is inching back toward raising U.S. interest rates. At least a little.
At least some “members (of the Federal Reserve’s Open Market Committee or FOMC) anticipated that economic conditions would soon warrant taking another step in removing policy accommodation” was Fedspeak code indicating it’s FOMC was still wishy-washy about jacking up those interest rates but might be inching toward just such a move.
Betting on Wall Street still favors an interest rate increase of 0.25 percent in December. But today’s statement may alter that sentiment a bit in the negative direction. While the Fed seemed more positive on the American economy than in its previous minutes, for average Americans at least, there’s still little to celebrate.
It remains to be seen whether the Fed will be taking this crucial factor under consideration as a threat to those probably unwarranted statements of optimism regarding our still quite-moribund national economy.
Stocks have been down much of the day Wednesday, but got a quick pick-me-up after the Fed minutes were formally released at 2 p.m. It’s now 3 p.m. as we write this paragraph and the Dow and S&P 500 are barely pinned in the green at the moment, up 4.28 and 1.30 points respectively, barely registering as a tiny blip in the bulls’ favorite direction. The odds of a positive 4 p.m. close at this moment are about as predictable as the outcome of this fall’s election, no matter what the punditocracy is lying about today.
For the moment, we’re still flat out of ideas in this suspiciously bullish but actually trendless market.
We continue in our attempt—outlined here in Tuesday’s column—to buy some new shares of preferred stock in the OTC Grey Market before these issues begin to trade on an actual exchange, most notably shares of a new Gladstone Land Preferred, priced at par ($25) to yield a nice 7.9 percent. But no matter what kind of bid we throw into the Grey Market’s black hole (see yesterday’s explanation) we can’t move the needle.
That’s because the Grey Market—like the atmospherics and morals in the film “50 Shades of Grey”—is fuzzy and mysterious. It’s a treacherous place for little guys to trade, but it’s also sometimes a place where you can scoop up bargains few others know about. Hence the allure.
As with similar transactions we’ve attempted over the past 6 months, we suspect some kind of shenanigans are going on with the placement of these preferred shares, whose initial transactions, unlike common stock IPOs are generally opaque to us little guys on personal computers.
One of the best sources on the Internet for detailed information on publicly traded preferred stock issues is DividendYieldHunter (formerly YieldHunter) a disciplined professional-caliber layman like both the Maven and many of this column’s readers, who’s been at this game longer than we have when it comes to the art and science of preferred stocks.
Yet DYH is also suspicious of his continuing inability to grab a few new Gladstone Land Preferred shares in the Grey Market:
“All day long we were trying to purchase shares of the new Gladstone Land term preferred (OTC Ticker: GLLTP) without luck. The issue traded in the $25 to $25.50/share range during the day before closing with a low price of $24.50/share. Data shows just 27,000 shares trading, but one doesn’t know when shares are sold to a big buyer such as a closed end fund etc. Needless to say we didn’t get a fill on our order today (we had a limit price of $25.25) and will try again tomorrow.
“The reason we mention caution is that we have anecdotal evidence that there are some shenanigans being played by underwriters on this issue. 1 reader indicated that they had called Vanguard on shares and the best ‘offer’ they could come up with was $30/share–what’s that about?
“So back to our headline—caution and common sense is the order of the day. We love term preferreds but we will use a tight limit of $25.25/share on these–that’s it.”
There you have it. The Maven isn’t the only one. However, in the wonderful world of the Grey Market, the Boyz can pretty much do what they want. In this case, it seems likely they don’t want little guys like us in this issue and are carefully negotiating deals with reliable larger players to pick these shares up before they go formally public.
But that’s just the problem here. In the end, the Boyz will sell a lot of these shares they’re acquiring at secret prices to lay buyers like us for a nice profit, at which point orders will dry up and, if the Fed even sneezes in the direction of interest rate increases later this year, the shares will take a hit and we could be left holding the bag.
Preferred shares, if you can buy them at or below par ($25, usually), particularly those issued for a short term of 5 years or so, offer you a swell yield, protection against interest rate-caused stock smackdowns (due to their short duration) and the possibility of actual capital gains if you can pick them up under $25 per share.
It’s clear, at least for this issue and perhaps others over the past few months that, as usual, the Boyz want every penny of possible capital gains in this sector for themselves. Perhaps that’s why they’ve barred the door, at least currently, for the average investor to get in on this issue and others.
This kind of activity is just another unfortunately legal way the rich in this country get richer and why it’s harder than every for desktop traders, even the smartest ones, to beat these greedy clowns in today’s increasingly corrupt U.S. market of stocks.
We’ll keep you posted on our continuing Grey Market adventures.Click here for reuse options!
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