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Kind of a Calm Day

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.

Little Buying–Not Too Much

Today I bought a 1/2 position in the Highland Income Fund 5.375% perpetual preferred (HFRO-A) for $23.67 – current yield 5.70%.

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.

Nice Earnings From DTE Energy

Utility DTE Energy (DTE) has released very nice earnings. DTE is a Detroit based utility providing electricity and natural gas to parts of Michigan.

Now when I say ‘very nice’ I mean, very nice for the times we live in.

While earnings were down around 15% from the year ago quarter they remained very respectable.

I was quite surprised that the company ‘reaffirmed’ their operating earnings outlook for the full year–seems pretty optimistic to me.

The company has 4 baby bonds outstanding which can be seen here. Disclosure–I own 3 of the 4 issues which I bought at much lower prices. All issues are now at or above $25.

Their press release is here.

Party On–Well Maybe Not?

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.

In spite of the ominous outlook I have done some nibbling this week. I bought the Annaly Capital NLY-G, another taste of Hersha Hospitality HT-E, some Two Harbors TWO-D, and some WR Berkley WRB-B. Not much of any of these issues and some were additions to current positions. Some are already redeemable–but as long as they are under $25/share it is not a problem.

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’.

Schwab to Test The Waters

TimH posted that Charles Schwab will be testing the waters today with a new fixed-rate reset perpetual preferred share issue. The preliminary prospectus can be read here.

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.

Monday Morning Kickoff

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.

News of Interest

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 week paying 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 a business update yesterday–on the face it seems positive

As you might expect so previously announced deals are falling through. Lodging REIT Xenia Hotels and Resorts (XHR) had a $100 sale in Austin Texas fall through.

Good News Sends Stocks Higher

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.

Also I am looking for a taste of a mREIT preferred or lodging preferred–just a taste. And while I am at it maybe a taste of Associated Bank preferreds-with a current yield of up to 6.4% —I had originally thought Customers Bancorp preferreds (CUBI), but I am trying to stay away from the Fixed to Floating issues–with 3 month Libor at 1.18% today FTF issues are in a position to see their coupons fall once they hit the floating rate date (usually 5 years or so after issuance).

Likely I will add just a few percentages to the portfolio this week–we’ll see.

A Slow Realization of a Sinking Economy

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.

I see the investment grade utility issues are off around 1% today–is that a deal? Or will prices move another 1%, 5% or 10% lower?

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.

Investor Confusion? Everyone Has an Opinion

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.