After opening up about a 1% lower stocks have been pretty much trending water–folks don’t know whether they should be buying or selling. I am just watching–haven’t bought or sold today. Of course the 1st time unemployment claims were terrible–but we all knew that would be the case. I will really be interested in the April employment numbers to be released late next week–they will be terrible–we all know–just how terrible is the question.
I have been watching the investment grade Utility/CEF spreadsheet just in case a bargain springs up–but no such luck–not really much available in the investment grade area that anyone could call a ‘bargain’.
I did take a look at some pretty respectable earnings from Site Centers (SITC)–an open air mall company. There earnings were above last years 1st quarter and they had sold a their holdings in a joint venture and banked a nice $141 million in net proceeds. The company has over $500 million in cool, hard cash in the bank. Additionally they suspended their common dividend–a smart move I think as this quarter will not be so impressive–it is nice to see someone with that much cash move to preserve assets during a period of uncertainty–obviously the common holders are less impressed than I am.
SITC has a couple perpetual preferreds outstanding with current yields in the 8% area–trading around $20/share. The preferred shares are rated Ba1 and S&P at BB–so NOT investment grade by any means, but maybe on the watch list, but only at much lower prices. $500 million in the bank will go a long way toward getting them through the storm.
Heading toward the close I suspect we might see a larger market move–whether it is higher or lower is anyone’s guess.
This issue is A1 rated by Moodys and since it is a closed end fund it is required to maintain a 200% asset coverage ratio–the ratio was around 360% on 12/1/2019—no doubt much less now, but it is the best CEF preferred available now that is investment grade.
Additionally, I went ahead and bought a little more of the AMG 5.15% Convertible Trust Preferred (AATRL) for $38.75 (6.5% current yield)–I just can’t help it–I am really overweight on this one with initial buys almost $10/share lower. It is now at $40.09 (but thinly traded and may fall off any moment).
Also I sold a little more of the Spire 5.90% perpetual (SR-A)–I thought I had sold it all yesterday on a pop, but found more in another account.
These add another 1% to the portfolio – now I wait and watch some more.
Watching equity indexes earlier today made me think ‘am I crazy’? I’m looking at not just the current economic conditions, but at what I think is likely a year out. I am super conservative, but I am trying to take the optimistic view of the global economy.
I see 15-20% unemployment (current) and at least 5-8% unemployment a year out–how does that translate into equity prices that are only 15% off all time highs?
I see earnings releases from some of the drug companies that are pretty good–I see 3m being pretty good–no surprises here. But who is buying cars–a lot less folks than a month or two ago. After an initial pop as folks rushed to set up home schooling sales of electronics, appliances etc have dropped off a cliff–Best Buy said after this initial pop sales were going to off 30% in April–a year from now are they going to gain all of the sales back?–I don’t think so. A company like Best Buy runs on very skinny margins sales off 5 or 10% means long term layoffs.
Talk about a disaster–unemployment. Folks still haven’t gotten payments in many (most?) states. I know people in Minnesota that applied in March and a month later they have no clue whether they will see some money. Folks are running out of money–the $1,200 helicopter money lasted about 1 day–and now since folks have been trained to get a personal bailout everyone wants more.
Some businesses have reopened, but folks did not flock back to them–maybe those businesses got some PPP (payroll protection) money–but the rent, taxes, utilities and other overhead continues and if sales end up down 50% for the next few months those small businesses are toast–some that are getting PPP money are already toast–but everyone wants money, whether they survive or not is a different story.
I remain in the 65-67% invested range–and honestly I would be surprised if I go above 70% in the next few weeks. I need realism in the marketplace and until we start getting a 2-3% loss in equities week after week I don’t think there is realism–we remain in the ‘don’t fight the fed’ market—-these are ‘fake markets’.
This is a $1,000/share issue and the shares will not be publicly traded. Just the same the issue is of note as it has been weeks (or months) since we have seen a new issue of preferred stock. I will be curious to see the level of pricing on this new issue. Given that Schwab has a couple outstanding perpetual preferreds that are trading strongly I suspect the coupon on this new issue will be pretty darned meager.
Last week Medical Transcription Billing Corp (MTBC) did sell some preferred shares (MTBCP) (729,000) – but it was a reopening of a previous issue. The company is a serial issuer of preferred shares and after this new sale there will be over 4 million shares outstanding.
The S&P500 traded in a range of 2727 to 2842 last week before closing the week at 2837–which was about 1.3% lower than the close the previous Friday.
The 10 year treasury closed last week at .60% which was below the close of .65% the previous week.
The Fed balance sheet grew by $210 billion last week–with the balance sheet now holding $6.573 trillion is assets–and amount which will never lowered significantly–not in my lifetime anyway.
Last week–believe it or not–we had very little in average $25/share baby bonds and preferred stocks.
The average $25 issue was 3 cents lower last week, bank preferreds were 8 cents lower, investment grade issues were 1 cent lower–the only group that we track which had a gain was the closed end fund preferreds which were 26 cents higher. mREIT preferreds are at $17.77 amd Lodging REIT preferreds are at $11.71–no doubt that some time in the future there will still be large gains in these sectors–wish we knew which companies ended up being ‘winners’ and which ‘losers’.
So we enter the week with the DJIA futures up a couple of hundred points–whether it holds or not is anyone’s guess.
I see General Motors suspended their dividend this morning as well as any stock buy backs–this is a sign of things to come and no one will be too surprised by these moves.
I keep watching corporate news to see what is shaking in some of the companies of interest to me (and maybe you).
Arbor Realty Trust (ABR) borrowed$40 million this weekpaying a coupon of 8% for the 3 year note. Guess they won’t be calling any of theoir high yield preferreds for a while (not that I thought they would anyway).
Diversified REIT Gladstone Commercial (GOOD) put out abusiness update yesterday–on the face it seems positive
Finally after waiting for weeks we are seeing some good news–or at least ‘hopeful’ news.
States are beginning to slowly reopen some businesses–and this at least gives me more hope than the daily beat down of terrible stories. On the other hand it may not work out–maybe there will be an explosion of Covid 19 cases–but for today it is good. On top of that it will be sunny and 71 degrees in Minnesota today–always helping to raise spirits.
While the good news helps brighten the day, honestly there will be so much bad, sad and terrible news in a week, a month or a year that one doesn’t want to let their good spirits let them get carried away. On the other hand I think I will buy something today–actually I already bought a few more shares of the AMG 5.15% Convertible trust preferred (AATRL)–an investment grade issue with a current yield just under 7%. I have been drawn to this one over and over–I can’t help but strongly believe it will trade $10/share higher before the year is out.
Yesterday, and again today, we are seeing a slow realization of the severe economic being done in the U.S. and globally by the Covid-19 pandemic.
Today equity markets are off a couple percentage points–but still 20% off of the March lows. Yesterday opened weak and then slowly gained ground until the end of the day when prices sold off again. Today we see prices heading lower, but in a relatively orderly fashion.
Today we see that the congress is near approving another $500 billion aid package and the news that they were very close to approving the package did nothing to boost share prices. This would seem to say that investors are finally starting to accept the notion that we are going to see plenty of pain ahead–more than was accepted earlier.
Now as prices move lower–in a relatively controlled fashion investors will have to make decisions on whether a bargain is a bargain–or whether they will have to wait for the BEST bargains–there is no answer of course. This means one should ‘leg in’ to what they want to own.
Some of the mREIT preferreds are off 1-3%–again are these bargains? If you bought them last week 50 or 75 cents higher do you want another bite at the apple today?
I will be mainly watching again today–but it is our belief that we will see lower prices ahead–maybe next month? On the other hand one never knows–if you believe that equity prices being only 18% below their all time highs is presenting bargains then I guess one should buy. If you believe 25-40% below all time highs is more reasonable then one should wait.
I should turn off CNBC–normally I do not have a TV on in the office–just a bunch of noise, but for whatever reason I have it on now. I guess the opinions on where equities are heading is pretty much split 50-50–markets are going higher to markets are going lower.
All I can say is I agree with Howard Marks, of Oaktree Capital, when he said (paraphrased) he is negative on equities–the SP500 estimates are off 15% for this year–does it seem like we are just 15% off of the norm?
It is getting even harder and harder to leave 35% of accounts in cash–you don’t want to miss further move highers, but on the other had you don’t want your portfolio to get vaporized. I am pretty much sitting tight today.
I have perused the preferred stock loss list and see some there that seem attractive–but will they be more attractive tomorrow or next week. Arbor Realty 7.75% is off $1.34–and seeming attractive with a 10.13% current yield–BUT it was as low as $8 a month ago and it could certainly go right back down there. With 20/20 hindsight one should have bought way lower—of course that would not be my nature being ultra conservative.
Looking at the Utility and Closed End Fund investment grade issues I find nothing attractive–I am loaded to the gills already with these issues (most bought at much lower prices). As I mentioned before I want some of the mid range quality issues–American Homes 4 Rent preferreds, some more VEREIT 6.70% preferred, some Customers Bancorp (CUBI) FF preferreds (or many of the mid tier banks).
Well one thing I know for sure–as we go through the year there will be many companies that either go bankrupt–or teeter on the edge, and there will be lots of opportunities every month to try to buy–whether we call it speculative buying or bargain buying–those times will come.
Last week the S&P500 opened up the week at 2782, hit a low at 2721 and a high of 2879 and finally closed the week at 2874–a gain of over 3%.
The 10 year treasury traded in a range of .58% to .76% before closing the week at .65%
The Fed Balance Sheet grew by almost a hefty $300 billion–to $6.4 trillion–a crazy number, but one which is heading higher–much higher.
The average $25 preferred stock and baby bonds moved higher by a measly 8 cents last week. Investment grade issues were 9 cents higher while utility issues we down 34 cents.
So this week we have the DJIA looking a bit weak to start off–down 400-500 points, but we have learned that the early pricing on stocks doesn’t mean very much as any minute the FED can step in and manipulate stock prices.
I believe I am around 63-64% invested (haven’t calculated exactly). As boring as it seems I will be watching–still watching for some bargains, but I still hold out belief that better bargains are likely coming.
As you all know by now crude oil (west Texas intermediate) is trading around $11-12/barrel–incredible. With little demand and an oversupply of about 20 million barrels/day how will energy move higher? I see that in the comments Fabrib posted that Oaktree Capital has given a $750 million unsecured loan to NuStar Energy (NS). The press release is here.
Last month the company showed a NAV of $9.80 to $9.90 per share–a loss of NAV of almost 40% during March. NAV was off 50.44% YTD through 3/31/2020. Ouch. While I didn’t go back and calculate leverage ratios the company must be getting close to the 200% minimum coverage ratio.
I took the opportunity to do a quick look at Oxford Lane (OXLC)–a company very similar to ECC and I am guessing they have broken their leverage requirement–by quite a bunch.
mREIT Dynex Capital (DX) released new information yesterday that for the moment looked pretty darned good. The company sold off a commercial mortgage backed security portfolio for a gain–this was agency paper. The company’s SEC filing can be read here.
Diversified mREIT Arbor Realty Trust (ABR) released a shareholder letter on Monday that was relatively positive. ABR dabbles in many different mREIT areas, but in particular multifamily and commercial mortgage backed securities. The company’s letter to shareholders can be found here.
The above is information today–will todays stronger company’s be tomorrows weak companies? No one knows.
Lousy economic data?? Pretty much an understatement as we now have more than 20 million unemployment claims in the last month. Housing starts tumbled fairly hard in March, before the Covid-19 related issues hit really hard–April will be pretty bad no doubt. The Philly Fed Index was smashed lower–to a negative 56.6.
The key of course is not what is happening today, but what will happen for the balance of the year–prices will move on future data more than current data–obviously (or it should be obvious) no one really has visibility, but it appears to me that markets are now starting to be realistic–no V shape recovery will occur.
I read today that United Airlines has cut the May schedule by 90%–for all practical purposes they are shut down–looks to me like the airlines will see some bankruptcies–regardless of the bail out money.
No doubt everyone has heard that the bail out money is running out for small businesses–more money will follow, but it doesn’t matter there will be lots of small businesses that will either never reopen–or more likely will reopen, but after a few months of struggling to garner customers will hang out the ‘out of business’ signs.
I am mostly on the sidelines today–maybe a nibble here or there–but mainly waiting at 65% invested. On some of the more speculative issues I would like to buy I want a little more visibility.
Not sure when I will see a ‘all clear’ time to get 10% of holdings in mREIT and lodging preferreds–remember I am ultra conservative and when the pandemic is over (or handled) I would like to have a portfolio yield of 7-8%–would be more than happy to lock that down.
The domino’s are starting to fall–one by one. I believe the retail sales numbers, which were disastrous, are trumpeting the hell to come. The printing presses are way too small to overcome the decimation.
Today Best Buy (BBY) finally furloughed 51,000 workers–although most were part timers, there are full time positions being furloughed as well as ‘voluntary’ furloughs. You can be certain that involuntary furloughs will be next–within 2 weeks if stores don’t begin to open. The CEO of Best Buy stated that in April sales are down 30%–can’t run full staffs on very skinny margins with this kind of downdraft. I watch BBY closely because of family members working at their headquarters.
In Minnesota business owners are getting very antsy–the governor says he is sympathetic-kind of empty coming from a state employee (although he took a 10% paycut). Listening to the governors daily news conference yesterday it appears there could be a ‘revolt’ anytime–it will soon be the time to take a chance and begin to open some businesses–the economic disaster will soon outweigh health concerns.
I’m kind of watching it all play out today–no real motivation to buy or sell much, although I did buy 100 shares of the Spire 5.90% (SR-A) perpetual preferred to add to my currently holdings–bought at $25.50–I see it is at $26.20 now–this is a “Gridbird” special–he is in and out of this one often–I suspect he bought a pile today down in the $25.50 area–probably looking to sell it now for 60-70 cents of quick gains.
My perfect scenario is that we see equities drift lower–maybe 500 points a week for the next 8 weeks. I hate to see huge multi thousand point days–but prices have to go down–get real.
Plenty of bargains will be had as one by one the domino’s fall–I want to be there at the bottom.
I give up on trying to predict these markets–I heard predictions yesterday and today of end of year SP500 values of 2,500 and I heard one of 3,700. 1 is a RECORD high and the other is 10-15% below current levels.
Personally I am highly suspect of current stock market levels–seems it is too optimistic–but in the end it doesn’t matter what I think.
Regardless of the predictions it seems as though some folks are predicting a return to normalcy in the 3rd quarter while others are looking for normalcy in early 2021. With the business destruction and desperation I am seeing I am more in the 2021 camp.
Yesterday I read that the airlines are so desperate for cash that they are selling ‘miles’ to the banks at large discounts–even with bail out money they all know they will not return to normal (or even 50% of normal) before at least the 4th quarter–if then.
Over in the comments this morning Charles M noted REIT CorEnergy (CORR) was taking a pummeling. Seems that Cox Energy, which accounts for 47% of the companies revenue has suspended payments. I see their common shares are down over $10 to around $14 while the companies 7.375% perpetual preferred shares (CORR-A) are off $4/share–around $14. The press release is here.
Hammerings like the one at CorEnergy are the type we will be seeing every week for the rest of the year–there is no visibility.
I know some folks are talking about large cooperative CHS. The company released earnings last Wednesday and they were typical with what we have been seeing from them for a couple years–almost all the earnings are coming from the refineries–very little from the ag end of the business. The press release is here. I suspect they will have reduced earnings from the current quarter as volumes of refined product will fall–and ag will not generate anything. codger mentioned today that their nitrogen investment (in CF Industries-CF) tossed off $5.7 million in net income last quarter–what a joke–$3 billion invested for $20-$25 million in annual income. That joke cost the last CEO his job.
Also as I mentioned yesterday I bought 100 shares of the Tri-Continental (TY) 5.0% perpetual--I paid a little below the $55 redemption price. I bought this as part of my 50-55% safe portion of the portfolio.
Here is how I am being forced (foreced because I have little visibility of the future) to set my investments up – like this—55% safe issues, which by their nature are lower coupons—maybe around 25% decent quality unrated issues-for instance American Homes 4 Rent (AMH) perpetuals and then 10% more speculative issues–i.e. mREIT and lodging preferreds.
A few times a year I search through the various Gabelli Closed End Funds SEC reports to check the leverage ratios so I can update the CEF preferred spreadsheet with leverage ratios.
As most of you know closed end funds must have an asset coverage ratio at or above 200% on their senior securities which includes preferred stock and debt.
It is amazing that after being the 1st person to write about CEF preferred stocks more than a decade ago on my previous website ‘The Yield Hunter’ that I didn’t know that Gabelli publishes their leverage ratios every month on their website.
I want to thank James Craig for noting the Gabelli leverage page in the comments earlier today.
That’s what I love about having lots of commenting on site–some one always has the knowledge–and after 10 or 15 years of writing on the CEF preferred I now know it also.
The softer market today has opened a few opportunities for conservative folks.
The 5% Tri-Continental preferred (TY-P) has fallen back on lite volume–I bought 100 shares at $54.85–I see it wants to go a little lower. This $50 issue is callable at $55/share anytime. The CEF had a 4500% asset coverage ratio as of 12/31/2019.
There are bunches of utilities that have set back 1-3%–maybe there is an opportunity there for those looking.
Last week was a phenomenal week in equities as the S&P500 as the index it opened the week at 2578 and closed the week at 2789–a gain that was highly ‘juiced‘ by the Fed’s printing presses.
The 10 year treasury traded in a range of .64% to a high of .78% before closing at .73%.
The Fed balance sheet grew by $172 billion to a new all time high of $6.08 trillion–on its way to at least the $10-12 trillion area this year (my guess).
The average $25 preferred and baby bond closed last week at $21.84 after huge bounces in many areas–in particular mREITs. As expected CEF and UTE issues continued strong trading with CEF preferreds closing the week at $25.11 and all utility issues closing at $24.12.
So we are starting the week off with only small losses on equity indexes, but earnings season is about to begin. Whether investors pay too much attention is anyone’s guess , but does it matter anyway as the FED has taken the risk out of the risk/reward equation.
I am in the area of 62% invested and don’t really have a plan for the week. If there were bargains in CEF and UTE issues I would probably be a buyer–BUT I don’t expect any as they are already trading in the $25 area–and I want to buy lower.
Will the markets trade lower this week as the fundamental long term economic damage is finally admitted to? No one knows–but we always prefer to error on the side of being conservative.
All markets in the U.S. will be closed on Friday the 10th.
With the long weekend the last 2 hours today has potential for some fireworks–one way or the other. With an OPEC+ video meeting tomorrow the markets are betting on a big cut in production–no matter the size of the cut (if any) it won’t do much for the huge over production of oil and gas globally–domestically we will have lots of bankruptcies in the oil patch.
Today I haven’t done anything–maybe I will look in the last couple hours, but my original plan has been derailed somewhat. While waiting for a market setback to get a little better pricing the FED decides to back stop everyone–welcome to Japan!!! I mean really buying junk bond ETFs – we used to call this the risk/reward–in return for a higher return you take some added risk. NOW you get a higher return with risk being removed.
Regardless of the FED I can’t plunge into this market–add some more issues here and there in a nibbling fashion maybe–but wholesale buying isn’t going to happen.
So off I go to see if there are some issues that I can nibble on a bit.
The equity markets are up 11% this week before todays ‘party’. I don’t understand it at all–no surprise that someone who sees the chaos going on couldn’t understand stock prices moving toward where they were a month or two ago. Maybe I am all wet–and should be 100% invested at this moment, but I am fine with 60-65%–I think I will have a chance at lower levels.
At some point markets will wake up–I think–but not now. Investors need to use the levitation to continue to get positioned—maybe you have some issues that you aren’t comfortable holding—a good time to lighten up.
A continuation in nibbling is still the plan. I couldn’t help but add more of the Affiliated Manager 5.15% trust preferred issue (AATRL) yesterday–I am overweight, but the 8% is too attractive to me.
The issues I mentioned Monday and the smaller banks I mentioned yesterday are still attractive–for nibbling. Excepting the AATRL issue I noted above it is all about nibbling.
Should one be buying, selling or simply still just sitting tight?
Great question with no answer – 1 size doesn’t fit all.
My goal for this time is simply to come out of the virus situation with an average portfolio yield somewhat over the 7% area–maybe 7.5%–and to have 80-90% of my cash invested. The primary difference in what I hope to end up with is a portfolio that is much higher in quality overall–loaded up pretty good with utility preferreds and baby bonds of investment grade quality (or a notch under IG) bought at nicely favorable prices.
I will sprinkle in some mREIT preferreds–which in spite of the huge bounces in recent days are still providing 8-12% current yields. And when the time is right a few lodging REIT issues.
Also I have been looking at the regional and community banks today. Seems like Customers Bancorp (CUBI) and Tristate Capital (TSCAP) have some decent issues available at still decent prices.
Also the Affiliated Managers 5.15% convertible trust preferred (AATRL) is giving us another shot at a investment grade issue with a current yield at 8.00%–I just added a little more at $32.75 (it is a $50 issue). This issue trade consistently in the $50/share area through most of this year. As I have mentioned before this one is a true gift.
So I am around 60% invested and will likely move a bit higher–but I really question whether we won’t have another shot at better prices–I though so, but so far I have been wrong–we’ll see. I don’t mind being wrong if I can get that 7-8% portfolio yield with decent quality.
Supposed billionaire Tilman Fertitta is offering 15% for a term loan. You can be sure that this is going to be a common theme in the months ahead–we all know how leveraged these companies have been–and any disruption would cause problems–certainly the mother of all disruptions will bankrupt many.
The sharp rise in equities seems to be pretty premature–but markets do what they do and if investors think the pain of Covid 19 will be gone in 3 months they are going to be buyers now.
Unfortunately the pain is just beginning and will likely be with us for the next year-maybe more. Certainly some sectors will be living with the financial repercussions for years.
Many preferreds and baby bonds had big moves yesterday and so I will do some buying today–I am 55% invested and will add 5% more today. The 55% I have invested are almost all investment grade utility and CEF preferred bought at nice discounts–now I will spread out into some junkier issues.
Here is some of my shopping list for today.
I am looking at buying one of the Annaly Capital (NLY) preferred issues giving current yields in the 10% area.
I am going to buy some Brookfield Property REIT (BPYUP) preferreds – BPYUP with a current yield in the 12.49% area.
I will add some more of the American Homes 4 Rent (AMH) issues–in the 6.75% current yield area.
I am buying some Compass Diversified (CODI) preferred with current yields in the 11.41% area.
I have already been trying to place some orders and the spreads are so wide as to be ridiculous–but I am certain by days end I will have bought some of the issues mentioned above–if not all of them.