Month: April 2020

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.

I see the lodging REIT preferreds are pretty red today. I want some of these issues–but I want more long term clarity.

mREIT preferreds are mixed, but leaning toward the red side of things.

No real bargains in the CEF and utility preferreds and baby bonds--these things have been rock solid since the initial market shock wore off–no doubt there are lots of safety seekers in this arena.

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.

Yesterday I bought a bit more VEREIT 6.70% preferred (VER-F) in the $22/share area–that was adding to current holdings.

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.

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.

Here is a list of investment grade CEF and investment grade issues (preferred and baby bonds). This is for folks looking for safety–but willing to take some interest rate risk.

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.