Panic Selling? Not in Income Issues

I see MarketWatch has a headline of “Panic Selling Reached in the Stock Market”. Markets are off less than 2%–not sure any of us that were invested on Black Monday, 1987 would call the current fall a panic.

I am watching preferreds and baby bonds closely–and actually the average price is up 2 cents since yesterday. There are wiggles – plus and minus 1% in some issues, but that is true everyday.

What I am specifically watching for is the ‘baby getting thrown out with the bath water’–so far the baby is safe. Obviously this could change–but we need a real panic–multiple days to make that happen in a big way.

For the newer investors–take a deep breath–go get a coffee and resist doing anything crazy such as going to all cash–this too shall pass.

Sliding Into the Weekend on Uncertainty

Common stocks are slipping by about 1% today as the corona virus takes it’s toll. I think VinL hit the nail on the head in some comments that it is really about uncertainty in China as their information may well be less than transparent and of course stock markets hate uncertainty.

The 10 year treasury has slipped again and is now trading at 1.53%. With uncertainty in the markets yields are likely to slip some as folks like to move to a safer position–or at least what they think are safer positions.

We note today that the U.S. airlines are starting to announce suspensions of service to China with Delta leading the way–others will follow I am sure. We’ll see how far these various disruptions go–and then try to discern whether there will be GDP effects.

I am not seeing any real disruptions in the preferred and baby bond markets. There have been quite a few ex-dividend issues yesterday and today (35 issues more or less), but they have not put much of a damper on prices–on average.

One item I have noted that in recent weeks it is becoming more difficult to try to successfully do a dividend capture. While the ‘capture’ part is easy enough the security exit part is getting much more difficult. My personal idea on a dividend capture is to buy the issue around 2 weeks prior to the ex-dividend date and then hold through the date and look to exit within a couple weeks with a net 1% gain. For instance I bought the B Riley 6.75% baby bond (RILYO) earlier in the month to capture the 42 cent interest payment. Shares went ex dividend on 1/14–and I received the interest payment today. I am now looking for a bounce back in share price but thus far nothing–nothing at all. The bottom line is that I am up by a number of cents–but far from the net 25 cents I am looking to garner. Whether this is simply an issue of being B Riley or one of buying the wrong issue (they have 6 baby bonds outstanding)–or simply not entering soon enough I have no idea–but one gets used to ‘easy pickings’ so when I have to wait to exit I get ‘antsy’. Oh well I will just hold the issue for now.

January has actually been a decent month overall. I always have a modest goal of 7%/annually–and really would be most happy if I could get to 6% this year. Depending how markets close today January should be a gain of around .6-.7%, which would be plenty acceptable to me—I am sure others have done better (and some worse), but as we all know we all have different needs and styles when it comes to investing–not necessarily anything right or wrong–just what works for us.

Up and Down and Up and Down–Lots of Indecision in the Markets

Last night and early today I thought “it looks like a down day” in stocks (based on futures and early trading)–I think all of this was related to the corona virus, although maybe it was a delayed reaction to the FOMC not giving common stock traders and investors anything new to trade on at their meeting yesterday. Whatever the reason I guess the clowns decided it was time to drive prices up at the end of the day and we closed up by .3 or .4%.

On the other hand the 10 year treasury wasn’t buying into the stock move as it closed almost 4 basis points lower–again. Whether the corona virus reduces growth globally or not is a total crap shoot at this point in time. No one can claim to know the answer to this at this point in time–honestly we have huge numbers of flu cases each year and literally thousands of death (37,000 estimated in the U.S. last year) from the flu–I could go on and on, but it is just silly. Not that we shouldn’t take the corona virus seriously, but a little common sense would be helpful.

Anyway, let’s take a look at how preferred and baby bonds have done for the week thus far.

You can see from the chart below that it has been really quiet–prices seldom moving, on average, more than a couple pennies week to week.

The grand total movement of the $25/share preferreds and baby bonds tracked here (661 issues) has moved exactly ZERO since last Friday. mREIT preferreds are off 4 cents and investment grade preferreds are up 3 cents since that time.

Note that the 10 year treasury is almost 30 basis points lower than 12/1/2019. This is what makes income securities interesting. It isn’t always true that higher rates drive prices lower while lower rates drive prices higher. That is a big–maybe–sometimes–it depends. More than pure interest rate movements go into pricing these securities–as the chart above shows prices moving sharply higher while rates were a bit higher and are totally flat while rates are tumbling.

Obviously there have been ex dividend dates this week and that always sways the number a penny or two–but all in all this is extremely ‘Goldilocks”–and for some of us we like it quiet. On the other hand there are more active preferred stock traders like Martin G. who would like the see more movement so they can take advantage of the volatility.

One thing that is almost certain–as soon as all of us get lulled to sleep an ‘event’ will occur which will wake us up quick. We shall see what the weeks ahead bring.

Posting Comments on the Website

We still have a little confusion on posting of comments on the website.

Any commentor can start a new thread on any page/post by going all the way to the bottom of the page. Sometimes that is a long way down (i.e. Sand Box Page, Reader Alerts etc) but if you are on a laptop or deck top computer (that rules out Gridbird) you can hit your ‘end’ key and it will take you to the bottom of the page.

To Summarize–It is NOT necessary to alway just do a ‘reply’–by going to the end of the page you can have your post show up on the top of the comment section.

Lots of Demand for Dime Community Bancshares Preferreds

The coupon is 5.50% and the expected rating by Fitch is BB- (speculative), but regardless investors are jumping all over this new issue from Dime Community Bancshares (DCOM) as it opened for trading around $25.40–and now is at $25.45.

This just goes to show how hungry investors are for yield–and these smaller banks have traded pretty decent in the last year.

I think this issue may trade similar to the new Triton International 6.875% issue (TRTN-D) where yield hungry investors bought it up on day 1 as it opened the 1st day on the OTC Grey Market at $25.28 (on 1/17), and is now trading at $25.38–lots of initial excitement and then a more muted response.

For myself personally I have no interest in jumping into this initial fray on the OTC Grey Market at these prices. Only at a much lower price would I have any interest at all–even with plenty of cash in our accounts this coupon simply seems to meager for a small banking company–although the issue will do fine as long as the economy remains decent.

Dime Community Bancshares Prices New Preferred

Dime Community Bancshares (DCOM) has priced their previously announced preferred shares.

When I saw this coupon I thought I must be having a bad dream–actually I said “holy shxx”. 5.5% on a small community banker with a junky BB- Fitch rating. Well I guess the market will speak and since buyers seem to be hungry I’m sure the issue will be trading at $25 right away. ON THE OTHER HAND if buyers would reject the issue and trade it down a buck maybe I would have interest.

The issue is non cumulative and pays dividends on the normal quarterly schedule with an early optional redemption available in 2025. Shares are redeemable only on a dividend payment date.

Shares will trade OTC Grey Market immediately under temporary tick DIMEP.

The final pricing document can be read here.

TimH was right on top of this pricing.

Community Banker Dime Community Bancshares to Sell Preferred

Brooklyn based community banker Dime Community Bancshares (DCOM) will be selling a new issue of non-cumulative perpetual preferred shares. The issue will NOT be investment grade.

DCOM is a relatively small banking company with total assets of just $6.3 billion so this offering will be interesting relative to pricing.

DCOM has posted a presentation on the company which can be read by interested potential investors–it is here.

This issue should trade on the OTC grey market, but no ticker has yet been announced yet.

The preliminary prospectus can be found here.

mcg was right on this new issue.

Addition of a “Sock Drawer” Section

I have added a new topic in the right hand side menu for “Sock Drawer” discussion.

The intent it to include items that all of us consider “sock drawer” holdings.

My definition of “sock drawer” is those issues I own that I consider extremely safe and that don’t have to be watched too closely. Normally they would have more modest coupons, but you can sleep well at night (relative to safety)–you know the income stream is extremely safe, althought the share price may move around quite a bit.

Others may have their own definition–in fact I know they do–that is fine

For instance, I have held the Tricontinental 5.00% preferred (TY- or TY-P) issue for years and years. Tricontinental is a closed end fund managed by Columbia Threadneedle. TY was formed in 1929 and this small amount of preferred stock is the only leverage the fund uses–2.2% leverage. Because it is a CEF they must maintain a 200% asset coverage on the preferred stock–the last time I calculated the coverage it was over 4000%. This is a $50/share issue and last traded at $54.66. The issue is callable anytime at $55/share. Shares were issued in 1963.

You can use the link in the right hand menu to access this section–it is here.

Capital One Prices Giant New Preferred Issue

The previously announced preferred stock issue from Capital One Financial Corp (COF).

The non-cumulative issue will carry a coupon of 4.80%.

The issue is split investment grade with only Moodys rating the issue as low investment grade.

The issue will trade OTC Grey Market immediately under ticker CPONZ.

The pricing term sheet can be found here.

Capital One Financial to Sell New Preferred

Capital One Financial (COF) will be selling a new issue of perpetual, non-cumulative preferred stock.

The issue will trade under the permanent ticker symbol of COF-J when it begins to trade on the NYSE.

The issue is likely to be split rated–investment grade by Moodys and a couple notches below investment grade by S&P.

The OTC Grey market ticker has not yet been announced–but it will trade on the OTC prior to NYSE trading.

The company has 5 issues currently outstanding with coupons of 5% to 6.20%. These issues can be seen here.

NOTE–the COF-P 6.00% issue was callable 9/1/2017 and almost certainly will be called. It was trading around $25.60–now at $25.37. The issue is only redeemable on a dividend payment date.

The preliminary prospectus can be read here.

EarlyBird was the early bird on this one.

Stocks Claw Their Way Back While Interest Rates Drift

It looks like the initial selling in common stocks has ended and shares are moving slowly higher. I would think they are in a ‘wait and see’ period. Of course this wait and see could last just hours–or days. Uncertainty will last for a while–no doubt there are more undiagnosed cases of corona virus in the U.S., but if the reports come in slowly and are modest in number things will stabilize.

Interest rates, as measured by the 10 year treasury are now at 1.62%–down 6-7 basis points today. In my opinion rates were going to this level 1 way or another—I just didn’t think it would be a virus that sent them down. Recall that rates on the 10 year were down at the 1.45% in September–so the current rate is not a new low. We all know that rates could spike way up based on inflation or many others reasons–they could also drift lower and lower. So really since I could make a case for either higher or lower rates there is no reason to change anything I have been doing for months and months–probably will have to live with a high level of cash for a long, long time.

The average $25 preferred and baby bond is off 3 cents today–so we are seeing a bit of disruption–but it was long overdue anyway. I am seeing some of the energy shippers off today–Tsakos Energy Navigation (TNP) issues and Teekay Offshore preferreds (now owned by Brookfield Business Partners) as well. For those with a taste for higher risk maybe there is a bargain being created here.

Monday Morning Kickoff

Finally we see a week where stocks ended on a down note. Monday was a holiday and Tuesday, Wednesday and Thursday were fairly flat–as the S&P500 opened the week at 3321 and closed Thursday at 3326. Friday came and shares took a tumble closing the day and week at 3295–still just a measly fall of less than 1%. Whether the Corona Virus gets worse during the coming days or not appears to hold the answer as to the movement in common stocks–and potential bleed over into preferreds and baby bonds.

The 10 year treasury moved lower as it opened the week at 1.79% and closed the week at 1.68%. While a move lower by 11 basis points is substantial, it is not a giant panic–huge panics would show this move lower in a day-versus over the course of 4 days.

The Fed Balance Sheet fell by a relatively large $30 billion. This is the 3rd week in a row of moves of larger amounts–there has been no overall balance sheet growth for weeks now. It shouldn’t be assumed that the FED is withdrawing any liquidity to speak of as likely we are going to see some spring back next week.

We had a new issue sold by mREIT ARMOUR Residential REIT (ARR). The issue carries a 7.00% coupon. The company will call the ARR-B 7.875% issue in full.

The pricing term sheet can be read here.

While we saw a larger downdraft in common shares on Friday the overall $25 preferred and baby bond only moved lower by 2 cents on the week. Banks moved lower by 4 cents. We will see what this week brings as common shares look ready for a large fall.

No More 2 a.m. Posts

Early this morning I wrote the post on the new preferred issue from ARMOUR Residential. The post was not as complete as it should have been and had a couple typos. My apologies.

Last night I had a 8 pm flight out of Minneapolis–which got held up for 90 minutes so they could de-ice-why it took 90 minutes I have no idea. I ended up not getting to my Scottsdale room until about 1:30 am mountain time. I thought I could get the pricing posted in a coherent fashion–obviously not.

The good part is as usual everybody had data in the comments that completed the story. Thanks all.

The other good part is the weather in Scottsdale is beautiful–70’s and sunny–the bad part is that by Sunday night late I will be at my desk–hopefully with enough recharge for a few months.

Armour Residential REIT Prices New Preferred-Updated

Update–The OTC Grey Market symbol has been announced as ARMRP.

mREIT Armour Residential REIT (ARR) has priced their new issue of perpetual preferred stock.

The issue priced at 7.00%–once again lower than the earlier ‘yield talk’.

The issue will be cumulative, non qualified and optionally redeemable starting in January, 2025. This issue will pay a monthly dividend.

The company will be calling a portion of the ARR-B with the proceeds. Initially the company estimated calling 30% of the 6.210 million shares of the B issue, but it looks like they will be able to call as much as approximately 50% if desired as they are selling 3.45 million of the new issue.

The pricing term sheet can be read here.

Stocks and Interest Rates Tumble. What’s Next?

The 10 year treasury is tumbling some today-now off 5 basis point to trade at 1.72%. Apparently the bloom is off the rose in regards to the China trade deal and we have moved into fear of a global slowdown based on a virus. One can never, ever know where these things will take us, but more often than not it is likely we won’t see longer term damage to growth–but the knee jerk reaction is negative. We will just have to wait and see.

Stocks have tumbled as many as 200 Dow points–a non event really–less than 1%. As I have mentioned before I don’t give serious attention to equity moves until we see at least daily moves of say 1.5% or more and then my attention is too watch for more panic moves by nervous nellies bailing out of their income securities.

As mentioned by many in comments today all of the shipping companies are giving up ground–both preferreds and common shares. By far and away they are the biggest and most wide spread losers in the preferred arena.

I do see 1 ‘silliness’ move in the CEF preferreds as someone paid $27.85 for Gabelli Utility Trust 5.625% (GUT-A). This issue is up $1.30 from earlier in the month. The issue has been redeemable since 2008–folks are looking for a bruising as they could call this any minute–no doubt they could garner a 5% coupon (or better). I owned this issue last year and while it was a base holding I exited because of valuation (coupled with call risk).

The average $25 preferred and baby bond is off 3 cents today–no doubt being driven by some of the shippers as most sectors are plus and minus a penny. The only line on our chart moving lower is the 10 year treasury–and I expect that move will continue–slowly.

Costamare Preferreds Falling

Just a note that the 4 preferred issues from container ship owner Costamare (CMRE) are tumbling.

Shares went ex-dividend ex dividend on the 13th–and have just continued to move lower. The high yield issues are now $1 lower since ex date.

A quick scan and I don’t see real news out there (although there may be some), but I think it is more likely simply a sell off on valuation.

Their 4 issues can be seen here.

For those with risk tolerance there may be opportunity here.

mREIT ARMOUR Residential REIT to Sell New Preferred

mREIT ARMOUR Residential REIT (ARR) will be selling a new perpetual preferred in a refinancing transaction.

The company has 1 outstanding issue of monthly paying preferred, the ARR-B 7.875% issue which will be at least partially called. It has been redeemable since 2/2018. The ARR-B issue has been trading right around $25 for many months, but moved higher 5-6 days ago and is now at $25.34.

The new issue will carry on the tradition of paying monthly dividends and will be cumulative, but non qualified.

The preliminary prospectus can be found here.

Thanks to EarlyBird and Ptrader for being on the ball this morning and spotting this new issue only minutes after it was posted.

Potential Market Disruption Ahead

Early next week (Monday the 27th) we will see ‘rebalancing’ announcements being made by Wells Fargo on a number of Indexes. Below is a list of mostly preferred stock indexes that will announce rebalancing.

As you can see the announcement will be made Monday with actual rebalancing occuring on the next Monday (2/3).

Many ETFs track these indexes and I randomly checked a few of them and there is sizable potential volume that could occur in many issues–whether it is orderly or not is anyone’s guess. There may be issues “dumped” that would allow a few issues to be picked up at more bargain prices. We will wait and see what happens.

NOTE–the ETFs tracking these indexes are not the mega sized ETFs, but as a group they are sizable.

More Quiet Markets

With no China news-except for the virus which looks to have already played out (as far as markets are concerned) we are having a quiet day everywhere.

The 10 year treasury is at 1.765% which is less than 1 basis point (1/100% of a percent) changed from yesterdays close.

The DJIA and S&P500 are up a tiny amount–a rounding error.

$25 preferreds and baby bonds are moving by a penny here and a penny there. Again only banking issues moving much–off a couple cents. There was little ex-dividend action today so no movement because of ex issue. So since the 1st of the year we have seen almost no action in these issues–we actually like that–quiet is good.

Complacency is definitely high in these markets–and black or grey swans at this point in time could be really, really painful.

An Article–A Warning

Today ChuckP posted an article that is currently on Barrons. It is not unlike many we have seen in the past and most of us that have been investing in baby bonds and preferred stocks are well aware of the risk that is out there.

We are posting this because it is a reminder that markets are dangerous and even if you own bonds and preferred stocks there is danger. Newer investors in these areas need to know that it isn’t just about earning an easy (although modest) return by collecting interest and dividends.

Essentially it is reminding investors that chasing yield is getting a bit carried away—of course most of us know that, but it has been going on for years–when does the music stop?

Here is the article “Ponzi Market”. I believe Barrons will allow you to read this once only before the paywall comes up.

Let’s Do It!!

Let’s Do It!!

That is what I have to tell myself each day to force myself to buy riskier assets than I really want to hold.

Like many of you I have piled up cash positions that are too high–that means around 30% and I will have a few more percentages coming in when the Kayne Anderson 3.50% issue (KYN-F) money comes in on redemption. New issues being offered are either too low in coupon or simply are not issues that are really in my wheelhouse–i.e. too high of a perceived risk.

So each day I have to force myself into riskier assets. Actually I don’t have to–but I want to–I think it is the right thing to do even though it doesn’t always feel good.

Given that I have 50-60% of my funds in base portfolio positions that I have held for a long time it makes some sense to ‘force’ myself out into risk.

I certainly don’t think that others should move out to riskier assets–each person has their own needs.

Here is what I have forced myself to do in the last week or so.

I bought ($25.43) a full position in TravelCenters 8% baby bonds (TANNL). The issue goes ex on 2/13 for 50 cents. There is a bit of call risk–but there is a 8.25% issue that is callable which would go first and it is likely these won’t be called anyway (although one never, ever knows for sure).

I bought ($25.71) a full position in B Riley 6.75% baby bonds (RILYO). The issue just went ex for 42 cents a few days ago–I bought before the ex date.

This morning I bought ($25.09) a position in UMH Properties 6.37% perpetual (UMH-D). The issue will go ex on 2/14 for 40 cents.

Each of these had other issues that could have been bought, but considering YTC, ex dates etc. these seemed the best for me at this time–other folks may look at things differently.

I won’t likely hold long term on these issues, but would like to realize a 1-2% short term gain before considering selling them.

Slight Website Tweaks

I have made a couple of tweaks today–hopefully not anything that is very noticeable.

The fonts on the right margin have been reduced 1 font size. I am always looking to gain ‘space’ and I a trying to squeeze in some new stuff on the right margin. Hopefully this is not too small for folks.

2ndly – today David and mcg were discussing a weird situation that popped up before, but I couldn’t isolate the issue, but this time they noted the issue more precisely so I could address it. When you are commenting there was a block that said “website”–honestly I don’t even know what it was for–some default setting I guess. Anyway when anything was put in that box it converted into a link which attached to the commenter’s name. This was not harmful, not any security issue, but it was annoying. The box ‘website’ has been eliminated so that annoyance should go away.

Triton International Dividends

This is just in case others were unclear as to the status of the dividends paid by Triton International (TRTN) on their preferred stock. The prospectus on the issues have always been unclear as to whether they pay qualified dividends or not.


Data on the status of the various dividends can be found here.

As most of you probably know when a dividend is designated as ‘return of capital’ it reduces your cost basis of the shares.

For Instance

If you pay $25 for a share and receive $2 in return of capital distributions your cost basis in now $23. If you sell it for $25 you will have a $2/share gain since your cost basis had been reduced to $23 through receipt of a return of capital distribution.

The return of capital is not taxable – but upon the sale of the shares you may have a capital gain (or loss) and you will need to then pay taxes (if in a taxable account).

Rates Back In Drift Down Mode

The 10 year treasury has moved back into the drift down mode–no economic news to move rates higher. Maybe moving lower on Chinese virus outbreaks. Seems we are always talking about China–one way or another. Now trading at 1.77%–down 7 basis points.

Preferred stocks and baby bonds are darned close to totally flat–the average of all $25 issues is the same as the close last Friday at $25.97. Most sector averages are plus and minus 1 penny. The biggtest mover I see in preferreds is the Kansas City Southern 4% non-cumulative (KSU- or KSU-P). This is an old (1962) illiquid issue and someone lost their mind in late December and drove the price up to $33 and now it is down to $28.98–still a crazy high price.

I am really surprised we are not seeing more new issues–2 last week and 2 the week before–a grand total of 4 issues this year.

Also I saw a dude on CNBC today pitching preferred stocks–that is really unusual–probably means we will have a little more competition hunting for yield–we sure don’t need more buyers–I would like to see some sellers.

Watch These Indicators For Weakness

I have always watched the consumer for weakness in the economy–sometimes I simply watch the Univ of Michigan consumer sentiment survey (below)-

At other times I watch some data which is a little more detailed–plus it comes to me in a RSS feed. Below you can see the consumer credit defaults for auto loans, credit cards and mortgages.

Property of Standard and Poors

While I seldom have worries about my investment grade holdings–the net asset value may moves, but I know the income stream will remain in tact. On the other hand many other holdings that are unrated or just ‘junky’ I worry most about a recession and the consumer being 70% of the economy will likely signal ‘recession ahead”.

It is only common sense that the above data should dovetail nicely with employment–so, of course, we watch those number closely as well.

I know the charts above are a bit hard to read–but I think they show that the consumer is generally healthy–coupled with employment being strong–I think it is safe to say if the status quo remains we are good for the next number of months (short of a black swan).