A Nice Common Stock Selloff

The S&P500 is down around 3.50% right now with NASDAQ being off almost 5%.

The Yahoo Finance headline is “Why the Explosive Stock Market Rally is Crumbling”. What baloney that headline is–why is a 1 day move lower a cause for the use of ‘crumbling’ in a headline. I think that most everyone is somewhat welcoming of a move lower–I know I am.

On the other hand when I checked my accounts they were almost perfectly flat–some lower, some higher, but overall almost no movement. No bargains are being created in preferred stocks and baby bonds based on this common stock movement–this is normal. If common shares move down 1000 points or more in a day–with maybe consecutive days down we might see small bargains created in income issues–moves like this create bargains in income issues when folks decide to ‘throw the baby out with the bath water’ and that isn’t the case now.

I will continue to watch for bargains in quality income issues–but I will not be holding my breath waiting on a piddling 3-5% move lower in common stocks with interest rates on the 10 year at .62%.

51 thoughts on “A Nice Common Stock Selloff”

  1. Tim-
    You mention being almost flat for the week– same here, down 2/10 of a % on a rather ugly week for the markets.
    Ready with 46% cash & in cash parking spot. Need that next drop or two.

  2. The most interesting preferred trade today (9/4) was on FIISO IMO. It is one of the most illiquid of all preferreds. It has traded on 12 days so far in 2020. Today it traded a whopping 3 shares. What makes the trade interesting is that the price was 132.0001, and that is NOT a typo. When trades are in increments smaller than 1 cent, they are called “sub-penny” trades and are done only on “dark pool” trading platforms. As opposed to NYSE, ARCA, Edge, BATS, etc. The name dark pool is descriptive in that the bids and asks do NOT show when you look at quotes. Somebody had a bid price of 132.00 thinking they were the highest bid, only to be outbid by .0001!

    I am seeing dark pool trades on preferreds more often. I got outbid on an issue yesterday, not FIISO, by .0001 also. What this means is that when you think you have the highest bid or the lowest ask, there is a good chance a dark pool order is ahead of you and will get filled first. If the order size is large enough, it might make it down(up) to your bid(ask), otherwise you are out of luck. It just makes it harder to take advantage of the illiquidity.

    1. I had a bid in for 15 shares at 136.00 from 9:30am. I wonder why they passed
      up my 136 bid and filled the 132 and some change ? Does anyone have any idea why that happened ?

      1. Brokers have different conditions for accessing different ATSs. Especially when it comes to odd lots.
        You need to ask your broker why the order was not executed, perhaps the transaction was made in the system to which your broker does not have access. Or their order execution algorithm cuts off partial execution (only 3 shares took place there and your lot was 15) on especially illiquid securities, where the probability that the order will be executed completely is very low. In any case, only the broker himself can fully explain why this happened.

      2. Happens all the time on “pink sheet” or “billboard” over the counter stocks. I used to call it the Wild West of trading. You can argue with the broker if you want, but you won’t get any satisfaction. Not to mention your bid was for less than 100 shares, which will not receive the same attention as round lots.

        For a more egregious trade, take a look at CKNQP…it traded 200 shares at 102.25 yesterday….even though the bid never dropped below 104.25. I can’t explain that one.

      3. My guess is that the seller had an ‘all or none’ restriction on his offer , which would pass over any bids that didn’t completely fill his order. Folks use ‘all or none’ to avoid getting partial fills, but in this instance they missed out getting your odd lot bid at a higher price.

        1. thanks for everyone’s response. I have a call into my broker. i haven’t
          received a call back yet but i’m really not expecting very much from them
          anyway. Happy Labor Day to everyone and stay safe this weekend.

      4. woody & tex the 2nd. most interesting prefferred trade! I had a very similar situation several year ago unfortunately, I use a full service broker he entered a limit order at a even $ amount the issue always trades very low volume. got down a day or two later to the “number” and filled for some else. I did some investigating and it filled at a tenth of a cent higher than my bid. I called my broker said it looked like someone “was front running me” and asked him to always enter a slightly higher bid price next time to avoid if we could? he said it wasn’t there’ policy to deal in fractional cents. not calling anyone out but initials are E. J. not my only complaint

    2. The 0.0001 fills are actually not dark pools, they’re the result of a wholesaler filling the order out of inventory vs accessing the public market.

      For example, an investor sends an order to sell FIISO at 130.00 and the best bid is 132.00. Their broker offers zero commission trades. The broker doesn’t actually send this order to the market, they sell the flow (look up payment for order flow) to a market maker (colloquial, also called internalizer, wholesaler etc think citadel, virtu, 2 sigma etc) The buyer of the order looks at the market and can either buy the shares at a better price than the displayed bid (hence 132.0001) with the intent of being able to sell it at a better price or can decide its odds of selling higher are slim so will just send it to the market at 132.

      On a side note, OTC market is very different than listed market (nyse,bats et al) The rules on order protection, firm quotes, best ex routing don’t apply.

      1. MCG Said: “The 0.0001 fills are actually not dark pools, they’re the result of a wholesaler filling the order out of inventory vs accessing the public market.”

        MCG, I agree with your explanation that the fills are liekly coming from the internalizer that received the sell order. It Citadel for example filled the order, it would be from their dark pool. Citadel, Virtu, Two Sigma all have dark pools. I guess the distinction is whether there was a sitting order at a dark pool, as opposed to the internalizer creating the buy order when they received the sell order from the brokerage.

        Also, I am not aware of any lit exchange or ATS that does sub penny trades. Do you know of any?

        The bottom line for preferred investors is the same regardless of the exact microstructure routing these orders take. When your order is showing as the NBBO (National Best Bid and Offer), there is a good chance there is another order that will step in front of you and be filled first.

        In this case, there is nothing the buyer with the 132.00 could have done differently to get filled. If the seller placed his order at a brokerage that used an internalizer, they would have been able to jump in front of any order at any buy price you used if it suited their interest. Even if you placed your buy order on a dark pool at a higher price, say 132.01, it would likely not have been filled if the NBBO bid was 132.00. The internalizer would have jumped in front with his 132.0001 buy order.

        1. >I guess the distinction is whether there was a sitting order at a dark pool, as opposed to the internalizer creating the buy order when they received the sell order from the brokerage.

          I don’t think this is the distinction. Internalized orders don’t transit the dark pool, they just get filled out of inventory directly. The dark pool is for transacting agency orders vs principal.

          >Also, I am not aware of any lit exchange or ATS that does sub penny trades. Do you know of any?

          All lit exchanges (aside from maybe NYSE, don’t recall off hand) allow transactions at the sub-penny level, usually at the mid (132.005 for example).

          >In this case, there is nothing the buyer with the 132.00 could have done differently to get filled.

          Yes, unfortunately this is the case. The liquidity provider is not only the disadvantaged participant but also the one most likely to get adversely selected.

  3. Well total surprise at the end of the day. I picked up 200 of NYCB-U at 43.52 wasn’t what I was expecting. Still hoping for a farther drop on the GSK to a 5% yield range and hoping my bid on PFE below 36.00 hits.

    1. Charles, I am no bank expert, but I certainly like this NYCB-U issue myself. I reentered a personal full position about a month or so ago. It looks today to have dropped to around my last entry purchase price. Im holding this one long term and letting it play out. I must admit its tempting to add more again here, but my general distrust (possibly unfounded paranoia) for bank and financial issues is higher than most. So I will just sit with what I have.

      1. Well it caught my eye when you mentioned it Grid. If I am reading the prospectus right but I am far from a expert, they can defer payments up to 20 qtrs. if the common and preferred dividends are suspended but have to pay the accumulated distributions if the common and preferred are reinstated. That seems better than what you normally get from holding a bank stock. Especially one paying a original coupon of 6% which was normal for 2002 and almost 7% with the discounted price

    2. I like to compare preferreds of the same issuer. Overlay a chart of NYCB-A and NYCB-U. Note the divergence of the last few weeks. No reason I can think of that A should be outperforming U. Sure, A is qualified, but above par. U is under par, higher yield, and a bit higher on the capital stack. U dividends can be deferred, but A dividends can be totally skipped.

      1. Retired, it comes and goes more at times based on any buy/sell imbalance, but it has always traded as a “stigma” stock versus its weaker preferred sister. The reason is simple of being the OID from the “convertible feature” and the bonus phantom income tax from ownership it spits out unless held in tax free account.
        Charles, there are not many of these bank trust issues left. And a deferral clause was standard fare for them. One BoA issue has a deferral clause to 40 quarters. BTW, NYCB-U made it through 08-09 financial crisis without having this clause invoked.

        1. Well Grid the people who started this bank are long gone having been set up in 1858. But it made it through the railroad panic and depression of 1873 the 1929 and the latest. Reading a history of the company they seem to be buying small regional or local banks during times of stress.
          This will add a little balance to my low paying CNIG which I hope can keep increasing its dividend.
          The NEE-I and IPLDP are doing good and I am ok with SCE-PL but may try to lower my cost basis on that one so I am in my happy place.

  4. Tim , Buying any preferred stock,, A or B rated under $25. Did well ,during the pandemic ..there up 10-18 %., Ty.

  5. The ten year treasuries are jumping in yield and financials are rising, the junkier the better. It may be a coincidence but there appeared an article in Reuters this morning about Chinese holdings of treasuries. It highlighted a suggestion by some professor in Shanghai that China might further reduce its holdings. The interesting part of the article were the numbers that show that China has been reducing its holdings throughout the year, i.e. China isn’t buying any of the new additional deficits. Who is? Modern Monetary Theory?

  6. Well, now it’s too early to talk about it, but I believe that this year the contrarians will still have the opportunity to buy good stuff at low prices. Although fixed income for now is holding up well, there has been no real panic yet. Will wait…

  7. The median preferred was down -0.44%, baby/terms were down -0.2% which both look pretty good compared to the broad market SP500. I do not see a single $25 preferred that had what I would classify as “panic selling.” Most of the biggest losers were low quality issues with suspended dividends and/or lodging, retail.

    I do see one UTE, CMS-B, that was off ~4%, which puts it back where it was on 7/16/20

    I also did not see any forced liquidations/panic selling in the corporate bond market, which was one of the early indicators in the March selloff.

    So far so good, but every day is a new datapoint.

    1. Tex the 2nd–I see we had numerous 1% losers–as you said they were lower rated issues–not much movement in the investment grade at all–plus and minus a dime or 15 cents–no giant bargains–as expected.

      1. overnight the futures where down and I hoped for some panic selling on some commons I had a bid in for ( PFE, GSK ) but my bids are too low as market jumped with jobs report. I expect with short week coming up we will see market pulled one direction or the other.

    2. Have you noticed the jump in the Bluerock D’s in the last week? From 22.5 to 24.9? Harder and harder to find anything below stated value.

      Don’t forget that the quality issues has poor yield to call’s so they have some slack in the price to avoid a decline?

  8. Hell yeah, I went to 50% cash just in the nick of time. Sold off all my high flyers and bolstered my utes and preferreds. Today I started selling puts on stocks I’d like to own 10-15% lower! My account was down 0.8% today…booyah! More downside coming I think maybe ES 3000.

    1. A little confused… So you’re cheering for others to lose money or is the point of your comment lost amongst the exclamation points? Just one of a string of comments seemingly cheering for thousands of points of downside/losses to be realized by market participants. Were you cheering for major downside movements before you sold and were riding the wave up or only after you liquidated holdings?

      Makes no sense to me why there isn’t enough pie for everyone to get a piece.

      1. Not sure where the confusion is. While yazzer may be a bit zealous in his desire to see prices drop after he pocketed some profits, I see this as no different than the many ‘flippers’ who post on this website regarding how they are in-out-in-out of preferred. Seems to me these flippers are hoping the same – they want to see something drop (to the detriment of anyone else that is holding) so they can repurchase at lower prices.

        Happy profits to all and have a great holiday weekend.

      2. There is always enough pie for everyone. That is why there are so many different flavors.

  9. I was actually able to pick up some of the called Prudential preferreds at par today. Not much money to be made, but a decent place to stash. Of course, just delays what I have to do for 3 weeks. 🙂

      1. You are correct, but it will get the accrued amount from then until redemption. Again, not much. But guaranteed and safe for a few more weeks.

        1. Interest accrues for payment date to payment date, not x-div date. 7 or 8 days would be right. Most times it’s paid from payment date up to but not including call date.. not sure if this is the same. so no less than 25.0279 or more then 25.0319.

          1. Well that is not what I expected, thanks for clarifying. So even less money, maybe a chik-fil-a meal then.

          2. Sold mine for between 25.01 and 25.02 today to move into something else in that account.

            Surprised I could get that much for it.

  10. Issues from Ag related companies held their value much better than most in the Spring: LANDP, CHSCP and FPI-B. The first and third are farmland trusts and the second is the largest co-op in the country ( although the majority of their income comes from energy sales).

  11. Hi Tim, this is great info

    ” No bargains are being created in preferred stocks and baby bonds based on this common stock movement–this is normal. If common shares move down 1000 points or more in a day–with maybe consecutive days down we might see small bargains created in income issues–moves like this create bargains in income issues when folks decide to ‘throw the baby out with the bath water’ and that isn’t the case now.”
    Will add this to my playbook!

    1. San Diego–it is true–those that have watched preferreds know that there will be little reaction until we hit the panic stage–could be 2 days of 1000 down days–could be 5 days of 500 point down days–but really seldom do we see income downdraft when big common selloffs occur. On the other hand if common shares were down and interest rates jumped 10-30 basis points that is a different story.

  12. Amen Tim. Well said. Another reason why fixed income is still King even with low interest rates. Hope all is well. I do like RILYN right now, trading below its 30 and 50 day SMA, not callable until 9/30/22.

    1. Gary–almost a ‘yawner’ for income investors. Keep 1 eye on Rileys management–they have made some very dicey loans in the last year and common equity keeps falling.

      1. Tim, I own the Z bonds and am very leery of them also. But, bottom line is the common stock is up over 7% YTD, and 28% past 12 months. They repurchased 3.5% of their stock a couple months ago, and issued a small special dividend last month also. All while issuing more high yield preferred and leaving expensive debt outstanding… And you wonder why I am leery, ha.

        1. Is there a chance RILY calls the remaining RILYZ baby bond for redemption with the proceeds of the new RILYL preferred?

      2. I have the H and I bonds and can sleep slightly better knowing that both will mature in 2023; hopefully RILY will still be solvent then. Meanwhile both yield 7ish %

    2. Gary
      How can you say fixed income is king with increasing possibilities of serious inflation and loss of buying power for the dollar? The fx value of the dollar is declining and is likely to continue. While I hope you are correct, the signs point to other directions. sc

      1. I get your point, i have been riding these preferred interest rates all the way down from 6-7% to 4-5% while their share price has gone into the stratosphere. Lately i have seen better value in the common share price. However, the last couple of days has enabled me to redeploy 25% of my current cash holdings.

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