A Weekend Ahead. What Will Next Week Bring?

It is always dicey to try to guess what the weekend ahead–and then the next trading week will bring us, but I always try–usually unsuccessfully.

Markets are pretty calm today–of course the employment report was bad, but everyone knew it would be and it will pale when it is compared with what is to come next month.

Logic would seem to tell one that the equity markets will sell off this afternoon, but that may be completely wrong–maybe they will skyrocket late in the day–maybe they will close unchanged since no one knows anything at all.

Markets have moved higher on days when they expected bailout bills to be passed–but then they settle back when reality sets in. There is always a lot of loose talk on how fast money will be sent from bailouts and unemployment–then reality sets in–well maybe a few folks will get something fast, but 75% of the folks will be waiting weeks if not months.

In Minnesota the director of employment services popped off a number of times about how many unemployment claims they were processing. Well the fact of the matter is only 15% of the claims were being processed while the other 85% couldn’t be processed because the state didn’t have data on the applicants (i.e. incomes). Honestly the system is a train wreck—of course I would expect a system under this much stress to break—but don’t BS the people how great things are going.

Today I see that many of the mREIT preferreds have been taken out and beaten. 1st they dropped like a rock a few weeks ago–then many of them bounced and then today they are being beaten. Of course I thought I was smart buying a part position in New Residential Investment perpetual (NRZ-B) at a low price–NOT–cheap gets cheaper–the lesson is simply patience.

I did take a modest sized position in Proshares Ultrashort SP500 (SDS) late Wednesday which is easing the pain from yesterday and today. I don’t want to get carried away with this position as shares can pivot quick and hammer you hard.

At this point I think that using bunches of patience will pay off–there will be lots of time to buy at low prices and this economic damage will be with us for a long while–and shares are not likely to head higher until we can have more definition on the total damage.

53 thoughts on “A Weekend Ahead. What Will Next Week Bring?”

  1. I think we can chop in this trading range a little longer until we see a lower low. I’m looking at 2190 – 2000 with 2060 as a perfect target Spx. Unless they get rid of Mark to Market accounting soon, this can turn into a depression. This is like watching your house burn and not calling the fire dept. Stay safe, ATB

  2. Tim, just an FYI my order for 150 AATRL just filled @ $31. Part of my rotation plan. Thanks for all you do.

    1. AATRL now dipped below $30! Is there specific news on this or it is the huge 2nd wave of general sell-off in lot of high-quality preferreds and Munis etc today.?

      Also, would this fixed-income sell-off somehow be linked to Oil price going up and down 20-30% in a day? I speculate that the big holders of fixed-income (likely foreign) are dumping their fixed-income securities as Oil price has been halved and/or to speculate on Oil to make-up?

      1. What is the draw to AATRL, other than their BBB rating?

        From the companies description, I see AMG is “headquartered in W Palm Beach, FL and owns stakes in boutique investment firms, hedge funds, etc.” I read that and I have trouble taking a business like this (and their IG rating) seriously.

        1. Jacob, I make no judgement on safety issue other than through my own paranoid eyes. And basically your post summarizes why I didnt join the party. I dont understand that stuff and dont trust anyone doing other investments that I have no idea what is going on with.
          My paranoia could be in part the ratings firms trail badly and lag any near term changes as many sectors in the investing world have blown up. Everything is a risk, I get it. But as an example below on MAA-I I posted, at least I know what they are invested in and where they stand financially.
          But Im thinking more in terms of a big core hold. If I needed something for my high risk bucket I wouldnt lose sleep tossing a 100-200 shares into it for yield goose. But that bucket is full so that is why I am passing….And it could be a very good investment also just because I am a nervous Nelly about it doesnt mean anything.

          1. Hi grid, I don’t own any preferreds at the moment.

            The economic outlook is so bad right now that I’m worried about companies suspending their dividend despite having access to credit.

            When times get hard it would probably make more sense to suspend the dividend before drawing down on a revolving line of credit to pay it.

            1. Jacob, I certainly dont dispute that. Im thinking more in terms of company staying viable with liquidity through the crisis to be able to pay or eventually pay. Bankruptcy ends that hope.

        2. Jacob – good question. I don’t have a good understanding of the company but it did trade mostly above 48 over the last 5 years (except recently) and paid it’s dividend.

      2. AATRL has been as low as 18 just a few weeks ago. I do have some at 28 but I’m watch it closely. Hopefully it will pay dividend this month. Hard to understand company.

  3. If you feel compelled to invest make sure you own a company that is nowhere near debt covenant violations and have liquidity (access to cash). Here is an example of one I own that is soldily liquided with an untapped revolver and well below debt covenant guidelines.
    2) There were no borrowings outstanding under MAALP’s $1.0 billion unsecured revolving credit facility as of December 31, 2019. The unsecured revolving credit facility has a maturity date of May 2023 with two six-month extensions.
    DEBT COVENANT ANALYSIS (1)
    Bond Covenants
    Required
    Actual
    Compliance
    Total debt to adjusted total assets
    60% or less
    31.4%
    Yes
    Total secured debt to adjusted total assets
    40% or less
    4.4%
    Yes
    Consolidated income available for debt service to total annual debt service charge
    1.5x or greater for trailing 4 quarters
    5.10x
    Yes
    Total unencumbered assets to total unsecured debt
    Greater than 150%
    331%
    Yes
    Bank Covenants
    Total debt to total capitalized asset value
    Required
    Actual
    Compliance
    60% or less
    27.1%
    Yes
    Total secured debt to total capitalized asset value
    40% or Less
    3.9%
    Yes
    Total adjusted EBITDA to fixed charges
    1.5x or greater for trailing 4 quarters
    4.9x
    Yes
    Total unsecured debt to total unsecured capitalized asset value
    60% or less
    25.6%
    Yes

    1. GRIDBIRD; I put in the symbol of “MAALP” into both Quantum and Yahoo Finance and nothing comes up. What is the symbol???? Name of the company???

      1. Chuck, I deliberately didnt put the ticker in. As I wasnt wanting to imply one should buy it at this price…Those are the abbreviations of the company that it apparently uses. Keep in mind this is no reco, and you need to do own due diligence. But the company is Mid America Apartment Communities. Their preferred is MAA-I which was issued in 1996 under Post Properties. They were acquired by MAA back in 2016.
        http://ir.maac.com/Cache/IRCache/3d8d36c4-9821-4c3d-8852-cca329444728.PDF?O=PDF&T=&Y=&D=&FID=3d8d36c4-9821-4c3d-8852-cca329444728&iid=103123

      2. Chuck, you seem to be interested in this type of stuff. Check out MAA-I’s provision for calling the issue after 2026. They just cant raise cash to redeem it, they have to sell something to do it with provisions attached. Most interesting as I have never seen this before. Of course this was issued 24 years ago….
        The redemption price of the Preferred Shares (other than any portion thereof consisting of accrued and unpaid dividends) shall be paid solely from the sale proceeds of other capital stock of the Company and not from any other source. For purposes of the preceding sentence, “capital stock” means any common stock, preferred stock, depositary shares, interests, participation, or other ownership interests(however designated) and any rights (other than debt securities convertible into or exchangeable for equity securities) or options to purchase any of the foregoing. Holders of Preferred Shares to be redeemed shall surrender such shares at the place designated in such notice and shall be entitled to the redemption price and any accrued and unpaid dividends payable upon such redemption following such surrender. If notice of redemption of any Preferred Shares has been given and if the funds necessary for such redemption have been set aside by the Company in trust for the benefit of the holders of any Preferred Shares so called for redemption, then from and after the redemption date dividends will cease to accrue on such Preferred Shares,

        1. Grid, As always you do a excellent job on looking at the details. The devil is always in the details. I tend to look at the greater picture and try to see trends. Good article on Friday about how our food has become a global exchange and can’t happen without transportation especially trucking. At some point in the supply chain, everything has to be moved by truck. With the business model of JIT instead of storing inventory. The news about MMM and face masks is a example. Not that they can’t step up production, its they are waiting on delivery of the material they are made from as its not stockpiled.
          will revisit TNNI and TNNL but after research I find this company competing against the 800# gorillas Love’s and Pilot J truck centers ( Berkshire owned )

          1. Charles,
            I reside in the hometown of Pilot. Know the founding family. Berkshire has invested (not fully).
            A few years back, Pilot had a scandal where it was falsifying rebates to truckers. During the scandal, Pilot increased its sales.

            The industry marveled at the incompetence of Pilots competitors. They could not even gain the commercial trucker accounts with this issue.

            That being said, Pilot profits are from its retail: drinks, beer, cigarettes, fast food. And, its stores remain open.

            Travel’s sales are more commercial trucking (certainly not higher sales level than Pilots) and that is lower margin. But, it should remain stable thru this situation. (Only in Canada does it have meaningful IHOP business in its stores and I don’t know if they are presently open.)

            Hope this helps. It would be a high risk purchase but my guess is Travel will plod thru this with its commercial trucking business.

            My high risk purchases are ones that are significantly owned by pension plans and such. I hide under those that get Government preferential treatment. In economic uncertainty The GOV decides the winners and losers; not the market.

            Example: After so much discussion on this site about Canadian issues, I didn’t do much. Now, I am looking at Bombardier. Canada’s only true engineering giant. Pensions fund are significant shareholders. I might take a gamble that Ottawa will save it.

            Also trying to understand the general revenue bond market. Will airports truly fail? WSJ had an interesting article on this. Some of these bonds support amusement centers, malls, etc. Only yesterday did Fortress (Brightline or Virgin Trains) which is financed in FL with tax free revenue bonds, receive approval from NV for issue tax free bonds for the train between LA and LV. Who will buy these????

            I am staying away from tax free funds because I don’t know what they have in the funds. But the specific issues for airports and essential services are of interest.

            Would value others thoughts.

            1. TNT, my thoughts are worth 2 cents. I remember reading about the Pilot scandal but they seem to have come thru fine. There is so many directions to go when looking at building a future retirement basket. Your comment reminded me again of the infrastructure angle. I remember a few years ago hearing about the Gordie Howe toll bridge being built from Detroit to Windsor Canada and thinking what a good deal it would be to get those 30yr bonds. But those kind of issues go to the big guys like the retirement funds. As for a train from LA to LV I had not heard anything as Northern and Southern as 2 different countries.
              Yes, one direction you can look at airports is Scroll back thru Ian Bezek’s articles on SA he was doing good with investing in Airport management firms. His last article on a New Zealand co. was probably at the worst time as the Chinese tourist travel dried up. But New Zealand is still going to be there after all this is over.
              Personally add in a few growth stocks to your 401 like RTX. defense and commercial supplier. Has troubles now with customers like Boeing and others but Gov. will not let them fail. Better position then their competitor GE and both supply jet engines. Of course what if TESLA got into aircraft engines ( joke ) nothing is for sure

        2. I worry about all the talk about Revolvers and lines of credit. The past week some financial firms warned some of their clients not to consider using it Think the weaker ones like oil companies. I know recently some companies have drawn on their revolver to have cash on hand but this is adding to debt although it pushes it down the road. I think the early birds maybe smart as its possible later this line of credit gets closed. For now I would prefer not to consider if a company says it has a revolver, maybe a rainy day fund and maybe a illusion. I know of one I am watching that says it has cash on hand and has a line of credit to draw on and so far its cash flow hasn’t been too impacted and its paying its April dividend, still

  4. Hoping the fixed to floating bank preferred get crushed again soon, MS-E, USB-M, WFC-R are not going below 25 right now. I can always buy more VER-F in the meantime.

    1. If interest rates are less likely to go higher in the next few years why would you go for fixed to float v/s fixed? Please explain – trying to understand logic and learn.

      Assuming that the floater rate is pegged to something like LIBOR which would be lower 2 years from now if the 2-year rate is lower than it is right now.

      1. If the floating rate is 4.5% + the 3 month libor, i am looking at a 4.5% + 1.2% as of right now. The 3 month libor rate was 2+% a few weeks ago. I figure if inflation was to pick up i am covered, and i should be fine if rates stay at 0. The perpetuals are investment grade rated except MS is right below investment grade. Most of my non common stock investments are in baby bonds with maturity dates so i am diversifying a little bit with a healthy yield too.

    2. NI-B
      utility reset
      under par
      split IG
      6.5% – qualified
      tied to the 5 year treasury
      4 year call / reset protection

  5. Folks, Any best of breed preferred CEFs? JPS for the long run?
    Bought ET yesterday. Couldn’t resist the candy. Very small %.

    1. anything that those HDO clowns ( R Moron) promotes over on SA is to be avoided at all cost – this includes JPS and ET

      HDO is associated with wealth distruction

      1. Rida says the market recovery is sooner than everyone expects so everyone should unload the dry powder before its too late.

        1. Pickle and Harmon, just scroll through their recos on SA the past 3 months…One disaster after another. The best way to turn ones 401k into a 101k is investing in all their picks… The stock picking dart throwing monkeys are literally rolling on the floor laughing at them. They know a lot of business is coming their way.

    2. Want to remain positive on energy sector given my current investment in EPD/ENB.

      Energy industry as a whole can combat many forces but demand problems while over supply condition exists is a big rock.

  6. Thanks for the efforts and WORK to get up the Sortable Spreadsheet Tim!
    Been used this last few weeks.
    Some of the discounts to par have really popped the YTC, real yields, with credit upgrade as a sweetener! How fast things changed!
    Nice diversion for the woodsy folk…foraging and mushroom hunting season is just starting. Can be fun just to be an observer of the Spring Magic! Take a walk in the fresh nature healer!! JA
    PS: Minnesota needs another month.

  7. There are still quite a few high quality companies out there with what I would consider really good bargains in the preferred bin. I do fully realize we are without any doubt still in unchartered waters. If you want some names let me know.

      1. Jag; I own all of the following and you need to do your own due dilligence but Iam comfortable with all of them. Now in no particular order of preference here goes: WFC+R, WFC+Q, GS+K, BAC+B, CFG+D, FCNCP, MS+F, MS+K, PNC+P, SREA, and IPLDP. Some of these are selling at huge discounts to their Par Value.

        1. @Chuck P-post of 4-3-20 12:42 PM. I don’t know if anyone reads weekend posts but I read whatever I can/whenever I can, especially with the ‘STAY-IN orders in all the states. Thank you for sharing your ‘bargains’ in the above post. I have found such type posts so very helpful since I have been visiting various forums! I see that we both bought in to the recent issues of FCNCP &IPLDP. Your pics are very notable in that they all issue qualified divs, are nicely rated, & are from solid institutions. Of course, our choices are very reflective of our investment goals. With that said, I see that except for the 2 positions we both share, the others are ‘fixed to floating’. Though I have purchased some ‘floaters’ I much prefer fixed income. I see that your ‘floaters’ will float at 3-month libor and anywhere from 3.09 to 4.06. Per my proclivities & personal goals , I have not considered any floats that will carry the fixed rate portion below 5% at the time the float becomes effective. My opinion is that we shall be in a very low interest rate for a VERY long time & this virus and the long-term ripples that it will make only serves to reinforce this in my mind! I think that there is a darn good chance in future for Libor to be near or at ZERO. Of course, in that case, one has to be content with just the lower fixed portions. Secondly, I have read that efforts were underway to replace Libor with another system and that it may not be as ‘generous’ as Libor; time will tell, of course. To me, your pick of
          PNC-P is really notable. Though it will only float at 4.06, that will not happen until 4/27!! If I am alive at that time, I will have reaped a great rate for the next 7 years and, who knows, 4.06% fixed after that could prove to be ‘gold’ at that time! Once again, thank you for sharing!

          1. FormerLurker,
            Your facts seem a bit off. PNC-P begins to float on 5/22, not 4/27. Can you double-check your notes?

            “From 5/1/2022, dividends will be paid at a floating rate equal to three-month LIBOR plus a spread of 4.0675% per annum. The dividends are non-cumulative …”

            1. To: Afinity4Investing–Thanks for catching my error! I looked up all of Chuck Ps holdings that he posted and I don’t know how I made that mistake.
              …Too much wishful thinking hoping to see something that interested me or getting google-eyed from being on the computer too much— Almost all preferreds & baby bonds have 5 years from issuance for first call or for the ‘float’ phase to begin so that should have raised a cautionary flag on my part. I checked my holdings and I do have 5 ‘outliars’ which I’ll list below out of 53 Pref./baby bonds which I currently hold>>>>>>>>>>
              IBKCO fix-float 5/16 to 5/26… CHSCL
              fixed 1/15 to 1/25…AHL-D fixed 9/16 to
              1/27…CUBB fixed 12/19 to 12/29…
              TWO-A float 3/17 to 4/27++SUSPENDED!!

      2. In my opinion, there is one particular issue that I believe meets the test of being a bargain–I bought it a few weeks ago and it has fluctuated much less than other issues & fortunately, I remain ‘in the black’. SREA..large utility..rated BBB-
        ..5.75% FIXED RATE…(which I prefer to floating)..call at 10-1-24…$22.90 last price I saw… This is a note (BABY BOND..beneath it are preferreds & the common so there is an ideal safety net of sort or cushion so-to-speak.

        1. Lurker, remember this is Hold Co debt which is a do nothing leach off the subsidiaries. Remember this debt is subordinate to EVERYTHING that the subsidiaries have been indebted towards including the preferreds. That is why the preferreds of subsidiary are higher rated than the debt is. Not saying its a bad investment at all. Just making sure people know what this means because the holding company is NOT the utility. It owns the common stock of the utility and a lot of debt also….From the prospectus…
          The notes are our obligations exclusively and are not the obligations of any of our subsidiaries. Because we conduct our operations primarily through, and substantially all our consolidated assets are held by, our subsidiaries, the notes will be effectively subordinated to all existing and future indebtedness and other liabilities of our subsidiaries. At March 31, 2019, our subsidiaries had total indebtedness and liabilities of approximately $30 billion owing to unaffiliated third parties. In addition, at March 31, 2019, our subsidiaries had approximately $581 million of liabilities owed to us.

          1. Gridbird; May I ask what you do for a living??? You are a very smart guy so I just have to ask that question??? Iam retired, so now Iam an expert on everything. LOL

            1. Chuck, I do nothing for a living as I am retired, ha. I tend to stay out of investing trouble because I learned this quote long ago…
              Socrates — ‘The only thing I know is that I know nothing, and i am no quite sure that i know that.’
              So I am basically a parrot that digs with my beak into the interweb to find info I trust. If its complicated or run by scoundrels I dont invest their. So I never invest or will in Mreits, BDCs, or Shippers…And lets add Mall reits to that list too, ha.

              1. I suspect that Grid is following the old adage” keep you eye on the ball and your ear to the ground” or something like that. I would not be surprised playing out on the golf course he has heard conversations with some of the older players about different companies that have stood the test of time. People who say its different this time or it can’t happen again are not listening to people who have been around a while.
                History does repeat itself and it can happen again, maybe just not quite the same.
                Grid, I always enjoy your posts

                1. Charles, ha, it sounds like a good theory but unfortunately its not. They have all been retired and reverted back to teenage humor and sophomoric comments. They view Corona not as a world crisis but a PIA to try to find an open golf course to schedule tee times, ha.
                  Though we do have one interesting guy…A totally committed conspiracy guy… Trump is going to throw all the deep state guys in Gitmo. Tanks are coming to DC to help restore order. Trump along with Rothchilds and other old money families are going to develop a new currency and workers will never have to pay incomes again.. Bill Gates is a villain trying to profit billions from a vaccine and Trump is going to throw him in jail for life for treason (he has inside information he says)… The guy means every word he says but we just ignore it as it doesnt do any good to argue with him….So long story short, no investing ideas out of this group!

          2. Gridbird isn’t the holding co vs. subsidiary issue pretty prevalent? Is Interstate Power a holding company for an Iowa and a Wisconsin utility?

            1. Niantican, no, you got it backwards in this example..Interstate Power is a subsidiary for Hold Co, Alliant (LNT). So generally the debts of Alliant are subordinate to Interstate Powers and the sister Wisconsin ute that also Alliant owns.
              But in general most utilities have been chewed up by hold co acquisitions, or even just turned themselves into a hold co/ sub outfit…

          3. Gridbird–Thanks very much for your explanation concerning SREA regarding the relationship of various issues and the interacting parts so-to-speak vis-a -vis of parent/holding company and subsidiaries. It sure enlightened me and I have no doubt a number of others…I know that you post on Morningstar Forums quite a bit as I recall and also on Seeking Alpha and Silicon Investor (Income Forum). I have always enjoyed your posts as they show a real grasp/knowledge of various topics particularly your favorite sector (UTES)!
            Please chime in and correct me if I post and have not seen the ‘whole picture’. I do get a kick out of your commentaries re Rida!

            1. Former, I am guilty of all but Morningstar. I never figured out how to sign up it seemed too hard so I never posted there, ha. Now dont be overly concerned over hold co in itself. Chances are if they go down, they are going down because the subsidiary did, ala, Pacific Gas and Electric, lol.
              My biggest holding is SR-A which is a preferred from the holding company proper, so that is the arse bottom end of cap stack. Im not losing sleep…And besides if people or govt allows stiffing the utes on utility bills a few months it doesnt matter so much for a regulated gas utility. Their money for the year has already been made. They generally make it all in the winter and many actually lose money during the summer because use is minimal.

        2. To FormerLurker; I agree with your assessment of SREA which I bought right on the IPO day. Still great call protection until Oct. 1st, 2024. Here are the Pros and Cons. In their prospectus they can defer payments for 10 years if they deem necessary. Pros are: over 40 million consumer customers, 20,000 employees, and over 184,000 miles of transmission lines. I do think most people always try to pay their Utility Bill before they spend on other stuff.

  8. Any thought why TNP/PC is holding so steady vs it’s sister, TNP/PD? The coupon is not so different, and as of the end of April both will be past their call date.

    1. Details matter / know what you own:
      TNP-C has a failure to redeem clause its going to be redeemed shortly. Details in last conf call transcript and prospectus

    2. Tsakos Energy is in the business of shipping oil and is very well capitalized, having sold some older ships and having issued a new tranche of preferred stock in the past 12 months. Rates for shipping crude have been rising since the beginning of the year and TNP is an established player. On the off chance TNP-C doesn’t get redeemed in October, there is a 25% cumulative penalty applied to the coupon. There are many worse places to hide from the CV market chaos than than TNP-C.

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