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Whoops – Hope You All Got Your AATRL

I bought a 150 shares in total in this ‘gift’ today at $30.97 (a 100 share buy and then a 50 share buy) to add to my 100 in the sock drawer. AATRL which is a $50 trust convertible issue from Affiliated Managers (AMG)—the yield at my cost was 8.3% for an investment grade issue.

I had wrote ‘mark my word this will trade much higher in the month or two ahead“. Looks like I should have written much higher in the next hour or two as shares are now at $36.59. Sometimes it is better to be lucky than good and we are lucky today. Thanks to all discussing this issue–gave me something to buy and write about.

Hope you all got the sock drawer stuffed down at $30 (or below for those that were in early).

Normalizing Markets? Moving Ahead

This is such a calm market today that one has to wonder about whether this is the calm before the storm.  I watch the news out of New York and shudder to think about a similar situation moving across the country.

Each day I see more and more layoffs and as we all know the median American has almost ZIP money in their emergency reserve–I feel fortunate to have months and months and months of $$$ in my cash reserves–I think I could get through 2020 without income–the result of having too much money in my checking accounts and having almost no debt.  I have to wonder what we are going to see on defaults on mortgages/rent, car payments and credit card debt.  Yes I guess the helicopter government money will tide folks over a bit–but not really for long a couple weeks–congress is already reloading the freebies.

Some businesses have seen decent business in the downturn–but I have to believe that folks ran up their credit cards to buy equipment for home schooling etc and that demand is going to fall flat in months ahead and those businesses are going to implode.

This week Friday we are going to have employment numbers for March and we already know they are going to be bad–but I believe the cutoff on the employment report is early in the month so next month will be disasterous.  I would post an economic calendar, but no use really as the forecasts and results are pretty useless for now.

So I hope to get back to normal on the website.  I have a lot of work to do to get caught up–ticker changes, suspended dividends etc. my time is very limited and these daily whipsaw markets have taken all my time.

I did buy some of the New Residential Investment 7.125% perpetual (NRZ-B) this morning–just a part position–no one should be buying full positions all at once–legging in remains a prudent act.  The company has declared their dividends today–whacking their common dividend, and it appears they are making moves to insure their viability.

I know folks have been talking about AATRL which is a 5.15% trust preferred from Affiliated Managers (AMG).  Right now this is a gift at $31/share (a $50 issue) –8.3% current yield.  The company has a $25 issue 5.875% debenture  (MGR) trading at $23.75–current yield of 6.05%.  I have just bought 100 shares of the $50 issue @$30.97.  I already owed 100 in my sock drawer.  Mark my word that this will trade much higher in the month or two ahead–folks are sleeping (except all our readers who have been right on it).

I see no significant difference in these 2 issues–the trust preferred was originally a private placement and both can defer interest payments for 20 quarters.

Calm Day? A Little Bit of Buying

On a relative level today is kind of a calm day–equity markets up 1.5% or so. I am very leery of this market–everyone is trying to pick a ‘bottom’ without firm data to really be able to see clearly.

I have made 2 purchases today–no sales of investments (except most of my Proshares Ultrashort SP500 (SDS) early in the day).

I went ahead and started a position in the RLJ Lodging $1.95 Conv Preferred (RLJ-A) @ $17.05–see it is up to $18.xx already. I chose this one because of the strong balance sheet–I think they will remain in good shape for a couple quarters without much business.

I also bought some of the AllianzGI 5.625% Convertible and Income preferred (NCV-A) which is an add to a previous position.

That will probably be it for today since I strongly believe we are in a bear market rally and opportunities remain to be seen in the months ahead.

I see the mREITs are getting hammered today while the lodging REITS are mixed. Seems to me that these sectors will take a number of months to sort out–maybe even longer.

So for now am just slowly moving back into the marketplace and staying with quality sprinkled with a few others that have more of a speculative twist to them.

Monday Morning Kickoff

Well here we go into what no doubt will be a wild week.

Last week the SP500 traded in a range of 2175 to 2629–an incredible 20% range–before closing at 2489.  This was a huge gain on the week and is highly likely to be a rally in a bear market.

The 10 year treasury, which for the time being has become fairly meaningless, traded in a range of .72% to .90% before closing the week at .75%.

The average $25/share preferred stock and baby bond closed the week at $20.40/share which was a gain of about 10% from the week before which was around $18/share.  mREITs are still the laggards at $16.01–even below shippers at $16.76.  We urge caution when buying the mREIT preferreds–after the bounce back in preferred prices last week there is potential for large losses if mREITs suspend dividends (those that have not already done so)–a 50% hair cut would like occur.  Investors should ‘leg in’ to any mREIT preferred purchases for another week or so.

Utility preferreds are at an average price of $24.12 which represents big gains for holders–we personally experienced these gains.  Additionally CEF preferreds closed higher and now are at $23.22.

A CASE STUDY ON CEFs

Investors should look at both Kayne Anderson MLP and some Tortoise closed end funds for what is total destruction.  Many of us feel fortunate that what was a ‘near cash’ type holding in Kayne Anderson MLP 3.50% term preferred (KYN-F) was redeemed a month or so ago.  KYN traded as low at $1/share–down from a 52 week high of $16.49.  Tortoise Midstream (NTG), which used to have some very nice term preferreds outstanding, closed last week at 99 cents/share–down from a 52 week high of $14.65.

Both of these closed end funds had broken leverage limits (they have debt and non traded preferred for leverage now), but it looks like while the common holders have been virtually vaporized, the senior security holders remain covered.

In the case of a very specialized CEF like the 2 above, which hold MLPs, they are self destructing when prices fall this fast.  The company has to sell securities to meet leverage limits, which causes prices to fall further, which requires more selling.

It actually looks like the companies are now in compliance with leverage tests as they did massive selling.  Here is an earlier statement from Kayne Anderson on leverage and how they handled it.

Where Do We Go From Here?

Well it has been a decent morning for me–not profitable, but not negative.

As you might suspect I bought modest positions in Proshares Ultrashort SP500 (SDS) late yesterday. As always when you hold these short positions it is a question when to unload the shares.

It seems like on these 500-1000 DJIA down days the safer issues (CEF and utility preferreds and baby bonds) are not moving much lower–seems like shares have moved to stronger hands after the illogical sellers unloaded them last week.

On the less than investment grade issues seem like there are still plenty of bargains being created–although todays bargains may be next week fire sales. Look at the big loser list.

This afternoon it will be interesting to see if folks ‘bail out’ prior to the close. Odds are I will hold my SDS position through the weekend–opening myself up to a spanking on Monday if we get a pop–thats life.

After the strong market performances this week my personal accounts have now moved nicely toward breakeven for the year–not quite there yet. I have 1 account down 2%, one down 4% and another down 5%. If I had more time to spend at the computer those numbers could be better–but I am satisfied.

Don’t Look Now But Markets are Irrationally Exuburant

Seeing the equity markets up this much today you have to know this is a bear market rally.

We have little knowledge (and the knowledge we have is suspect) on the extent of economic damage to the economy–but I guess it is ‘party on’ for the computers.

I just recapped the mREIT preferreds last night and today they are rocketing with some up 100%–this is the time you wish you had more than the 200 shares I bought. I won’t chase too hard here–they are bound to set back after today–and more as reality sets in.

I did nibble the Invesco Term Trust (IHIT) today as I bought some at $7.60 yesterday but today it was lower so nibbled a bit more.

I also nibbled more of the Gabelli Multimedia Trust 5.125% (GGT-E) perpetual.

So with a couple little nibbles I am done for the day I think. Better opportunities are ahead.

A Quick Look at mREIT Preferreds

As you all know many of the mortgage REIT preferreds fell fast and hard this week—either devasting investors or presenting a huge opportunity. We have seen large bounces the last 2 trading days, but prices remain very low.

Regardless of what these preferred stocks did this week and last this is a fluid situation and could change for the better or worse any day now so pay attention to your buys and sells.

I am suggesting that some investors with risk capital to devote to a more risky play look through these preferreds–the risk reward on many shares is very attractive–as long as one recognizes the risk. Remember all of these preferreds are cumulative dividends.

As most of you know mREITs leverage their mortgage portfolios with relatively short term repurchase agreements–using mortgages as collateral with an agreement to repurchase. If the collateral loses value the company must put up more collateral (per whatever the terms are in the agreement). This is where the counter party to the repurchase agreement demands more collateral–a margin call. If the mREIT can’t meet the margin call they try to negotiate a ‘forbearance agreement’ (an agreement to change the terms of the repurchase agreement for a while).

This week the Royal Bank of Canada has begun selling collateral from some of the mREITs below–apparently deciding not to agree to forbearance.

Let’s go through the line-up of companies and see where they are at as of this minute. The news flow is pretty active on these companies.

The mREIT preferred listing is here.

AG Mortgage Investment (MITT)

Preferred shares now in the $4.xx range. The company has announced they can NOT meet margin calls. Their press release.

AGNC Investment (AGNC)

This company hasn’t made any statements as of yet so it is assumed they met any margins calls made by counter parties. The company declared preferred shares on 3/13.

Preferred shares are in the $16-$19/share range.

Annaly Capital Management (NLY)

Preferred shares are trading in the $15-$18 area. The company has made no announcements so it is assumed they met margin calls if necessary.

Anworth Mortgage Asset Corp (ANH)

Anworth says they have ‘delayed’ declaring common share dividends–no mention of the preferred dividends. Their press release is here.

The preferred shares closed today in the $9-$10/share range.

Arbor Realty Trust (ABR)

No word from commercial and multifamily mREIT ABR. They have announced a $100 million in common buybacks.

Preferreds are trading in the $16-$17 area.

Arlington Asset Investment (AI)

No word out of AI. Preferred shares are trading in the $11-$12/share range.

Armour Residential REIT (ARR)

No word out of ARMOUR. Their monthly paying preferred is trading around $14.

Capstead Mortgage Corp (CMO)

Capstead made a statement on 3/18 but nothing since–statement at that time was positive.

Their preferred stock is trading around $18.

Cherry Hill Mortgage (CHMI)

No further word out of Cherry Hill since a 3/13 announcement of dividends declared.

The companies preferred stock is trading around $11-$12/share.

Chimera Investment (CIM)

No new word from CIM since 3/18 when they made an announcement of stock buybacks and successful ‘rolling’ of their repurchase agreements.

The companies preferred shares are trading in the $10.xx area.

Dynex Capital (DX)

No word from the company since the declaration of dividends on 3/19.

Preferred shares are trading in the $17 area.

Ellington Financial (EFC)

No word out of EFC at this point. Their 1 preferred issue is trading around $9.

Exantus Capital (XAN)

The company did NOT meet margin calls and default notices have been issued by one of their counter parties–Royal Bank of Canada. The company has rescinded previously declared dividends. The notice is here.

The company’s preferred stock is trading at $4.40.

Invesco Mortgage Capital (IVR)

The company did NOT meet margins calls and has suspended the dividend of both common and preferred shares.

The preferred shares are trading in the $7-$8 range.

MFA Financial (MFA)

MFA could NOT meet margins calls and has suspended all common and preferred dividends. The preferred shares are trading at $4.25.

New Residential Investment (NRZ)

No word out of the company. Preferred shares at trading around $9-$10.

New York Mortgage Trust (NYMT)

The company could NOT meet margin calls. All common and preferred stock dividends are suspended.

Preferred shares are trading at in the $4.xx area.

PennyMac Mortgage Trust (PMT)

The company has declared a reduced dividend on the common and plans to pay preferred dividends. The company has had no margin calls.

The preferred shares are trading in the $16 area.

Two Harbors Investment (TWO)

TWO announced the suspension of common and preferred stock dividends. The company met all margin calls.

Today the company announced the sale of all their non-agency mortgages.

Disclosure – I bought 100 share of the Chimera 8% perpetual (CIM-B) @ $8.80 and 100 shares of the Invesco Mortgage Capital 7.75% perpetual (IVR-B) at $4.60 earlier this week. I plan to build a small portfolio (maybe 1000-2000 shares) of mREIT preferreds over the course of the next week.

Strong Markets Make for a Nice Day

Well we have carried over some strength from yesterday into today–accounts look nice.

On the other hand the bid/ask spreads on some of the stuff I wanted to buy are pretty wide–many at $1 to $2. I have been adding to many positions, but not chasing too hard–if I have to pay 25 cents more than I want that is fine–but a buck or two per share–not.

I did add a perpetual back in with VEREIT 6.70% preferred (VER-F) down in the $19.xx area

I bought a little more of mREIT Chimera 8% FF (CIM-B). I had started a position earlier in the week–nice gains here as CIM has NOT suspended dividends as far as I have found.

I did sell my Hersha Hospitality 6.50% preferred (HT-E) for a few steak dinners. I want to build some sort of lodging REIT position, but thinking I am too early–so much pain coming in this sector.

So I have redeployed 5-10% of my cash, but continue to hold really ample amounts of dry powder.

Relative to the strong movements in the markets I am certain we will see lower prices ahead–we really know nothing on the Covid 19 and real economic damage is being done. My intention is to keep watching and buy when it seems opportunistic. With my conservative positioning now I don’t see selling much of anything.

A Decent Day–a Little Nibble Here and There

The day started off strong and I waited a bit before getting rid of a small amount of the Proshares Ultrashort SP500 (SDS) hedge that I had–then unloaded that and did a little buying–nibbling.

My nibbles were mostly adding to my utility baby bonds and my utility and CEF preferreds.

The only new positions this week were 100 shares each of the Invesco Mortgage 7.75% perpetual (IVR-B) at $4.60/share and the Hersha Hospitality perpetual (HT-E) at $3.20/share. Purely speculative–not real income investments, but priced for bankruptcy. Both companies have suspended all dividends.

Today as we head toward the end of the day we need to see if this is a ‘buy the rumor’ ‘sell the news’ moment.

We know that we will see various aid packages soon from the government, but these do not solve the Covid 19 problem and the coming steam roller that will totally destroy profits in many industries–that is why I am just a nibble here and a nibble there–using a tiny amount of dry powder, but mostly keeping lots ready. We will still be dealing with the Covid 19 fallout 9 months to a year from now–maybe longer–so I see no reason to ‘back up the truck’–more like load my car trunk time now.

Careful on Politics

I just spent 30 minutes going through comments which Matt had pulled out of the comment stream from yesterday.

I went through and removed a fair amount of the comment–I put a note in it–Tim removed the comment–or something like that.

In these crazy times we still need to avoid political commenting—all it makes is for ‘bad blood’–and in the end we end up being like the old Yahoo boards–totally out of control.

When Matt pulls out comments it temporarily ‘bans’ the person. As I went through and edited the comments the person is no longer banned.

As I mentioned before only 1 or 2 people have been permanently banned and I want to keep it that way–you folks are all too damned smart and we don’t want to lose your brain.