All Is Good in the World

Just looking at equities today I guess I have to conclude that all is good in the U.S. and the global economies.

Forget that the whole world is operating on quantitative easing (QE) as central banks keep trying to pump up global economies and growth is slowing everywhere. Oh well this game will work until it doesn’t and these things can go on for years and years–actually they have already gone on for years.

Right now we are awaiting the 1/4% rate cut next week to the FED Funds Rate. Hey-maybe they won’t cut–but really we all know that equities would tumble hard if no cut came and we know who is seemingly calling the shots at the FED-and it isn’t the FED.

Of course us that have been happy to at least get paid some amount when in cash (money market) will take a hit. Just checking the Gabelli US Treasury Money Market AAA (GABXX) we have in eTrade it is currently yielding 1.82% while the Fidelity Government Cash Reserves (FDRXX) is paying 1.6%. These will begin to trend lower with a rate cut–the speed to be determined by the maturities of the holdings.

It has been a busy week for us as we lock down some of the profits in individual issues. We went ahead and let the New Residential Investment 7.125% (NRZ-B) preferred go early today-seems like for now it is running out of steam and locking down the 3.5% gain seems like the right thing to do. Also the account this holding was in was almost fully invested and I wanted to raise a little cash in that particular account in case an opportunity comes up. My eTrade accounts are almost always fully invested, while the Fido account usually holds too much cash–caused by restrictions Fido has on some baby bonds and preferreds.

61 thoughts on “All Is Good in the World”

  1. Yes, everything is so “good”–Federal deficit increases 26% to $984 billion for fiscal 2019, highest in 7 years.

    1. Just remember, we came withing 1 vote of sending a balanced budget amendment to the states for ratification.

      Do consider who voted for, and against, the measure.

    2. The history of Fed Deficits is interesting political reading and at the same time putrid; give it a try. Very pertinent to the Money of Investing along with Consumer Deficits and money flows from banks to fund various qualities consumer spending…key elements. Worthy to watch these numbers and slopes. FRED is a fun (read: sobering) site to click around on just before Halloween.

  2. There have been a number of posts this week about trimming preferred holdings and raising cash. Here’s my question: what system/criteria do you use to do that? High price above par? High profits? Lower quality issues? Size of holding? Other? Like most of you, I am fortunate to have profits an an array of preferreds, but I’m struggling with what to trim and I could use some advice. Thanks.

    1. All of the above. Biggest factors for me are price yield and risk. I’ll sell the best stock in the world if the price is high enough. I’ll sell a solid company’s preferred stock if yield-to-call is too low.
      And the market as a whole looks riskier. If there’s an economic downturn we could have a wave of bankruptcies. Or if there’s inflation we could have big price drops.
      By the way I don’t have a large cash position. When I’m feeling bearish i redeploy from riskier assets to more conservative assets.

    2. Wilson, As a conservative investor, the distant drumbeat of potential ratings downgrades and the resulting price plunge as funds force-sell resonated with me and I’ve disposed of anything lower than a solid BBB (though I do have a few unrated on which I’ve done my own DD of the company). The driver now: YTC. The risk v reward does not work for me for YTCs that after tax considerations are approaching the inflation rate. At that point, cash and future “events” becomes more attractive. I sold a full position in AXO a few days ago when it hit a YTC of 1.59%. I cannot make sense out of holding something like that.

      You also asked about size of holding. I’ll confess to having let allocations stray a bit over the last 6-12 months, though I’ve had this increasing doubt lately about the stability of the markets…so I’ve gotten a bit more textbook and have better-aligned allocation sizes across 40 or so positions.

      One other consideration – I’ve also equal-weighted each side of IR sensitive positions. It takes 3-minutes of setup, but provides long-term ballast to the portfolio and also means I don’t need to stare at it every day.

      We’ve had an incredible year. Like others here, my own portfolio is up just shy of 17% YTD – and not seeing the point in risking that in pursuit of an extra percent here or there, so happy to sell the ones that get ridiculous.

      1. Alpha, you said:
        “One other consideration – I’ve also equal-weighted each side of IR sensitive positions. It takes 3-minutes of setup, but provides long-term ballast to the portfolio and also means I don’t need to stare at it every day.”

        Please walk me through your methodology, I’m a little thick headed.

        1. mikeo, Thick-headed? I’ve read your posts – you’ve got good “stuff”. Besides, I myself keep the dunce hat in the corner for the all too often sessions of self-penance and retribution.

          By equal-weighted – I’m balancing IR risk by pairing issues with opposite exposures to IR fluctuations even if extreme. A key pairing that comes to mind is EBGEF, which resets with the 5-year UST in a little over 4 years with de facto perpetual KTBA. Now, the beauty of this pairing is they were both acquired as good yielders and as a unit have outperformed. But I consider them low maintenance as on a day-to-day basis and do not bother to look at them. As I write I haven’t looked at either in days. It’s not that I don’t care – but really, I don’t care. lol.

          Separately…KTBA was an IG-rated issue that provides an interesting case study in what happens when an issue is no longer rated (or loses it’s rating). KTBA was initially a smallish $50M, A-something rated issue that IPO’d in 1999 via the old BellSouth that was absorbed and eventually absorbed under the AT&T umbrella. Then about a year ago they dropped they’re rating and the issue started a long slide in part I’m guessing as funds were forced to unload the now unrated but still relatively high quality KTBA. I made 5 purchases during that slide averaging all the way down. When the market turned earlier this year and wanting to hold KTBA long-term, I paired it with the otherwise highly asymetrical risk of EBGEF and set them adrift in to the portfolio.

          1. Not that anybody is looking, but KTBA has an odd provision that could bite if you hold it in a taxable account.

            https://www.sec.gov/Archives/edgar/data/894356/000093041304001097/0000930413-04-001097.txt
            search for S-4
            This follows….

            Tax Considerations

            …Your position in the Underlying Debentures and the Call
            Warrants will likely constitute a straddle for federal
            income tax purposes. Thus, any gain or loss realized upon
            sale, redemption, or other disposition of the Certificates
            will be short term capital gain or loss, even if you have
            held the Certificate for more than one year.

            1. Justin, Yes it’s an odd provision, and it’s interest therefore the distribution is also taxable. Fortunately my dimly-lit bulb was able to figure out this belonged in tax-advantaged accounts.

          2. KTBA slid because interest rates went up, then recovered because interest rates when back down. May look like a big move but effective yield has gone up less than 1%. That’s what happens when there’s no call option and redemption date is 2096.

          3. alpha8, are you the guy who’s been competing with me for KTBA trades on the spread? Such a low volume there can’t be too many of us.

            1. Martin, You made me go back and look at my last buy which was in the first week of July. I’ve got my fill for now but yes – for sure one of the challenges with KTBA is it’s thinly traded as you indicate. Via Fido I also learned the hard way how market makers are raking us over the coals. I hate reaching to the ask though did just that for two of the buys when the spread narrowed. I knew full well they were scooping the spread but I wanted the position and in during a few brief bouts of liquidity and a narrower spread made a move.

              Regarding KTBA tracking rates I cetainly agree but take a look at the the Nov 1 – Dec 17 2018 time frame when tnx started it’s free-fall, contrary to the rate move, KTBA actually dropped (plunged) from a high around 27.5 to 25.10. I don’t know exactly when they let the rating lapse, though I’ll bet you a beer (certainly not one of Bob in DE’s bottles of wine) it was at or near that time frame.

              1. I had buy and sell orders on KTBA almost every day playing the wide spread. Wasn’t much competition and the frontrunning robber barons weren’t very active. My biggest moneymaker for awhile. Nowadays it’s not so easy there seems to be more players and my fills are fewer and further between.

          4. Alpha, KTBA is still rated. Its still presently BBB
            http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C32618&symbol=T3668086
            See KTBA is just a retail trust that bought $50 million of the 2095 bond and put it in trust and sold it off in retail $25 slivers laying claim to bond in trust.
            It originally was a half billion issuance. T or Bell South earlier have tender offered in the past and have got all but apparently $77 million off the books. $50 million of that $77 million is permanently trapped in the KTBA trust. $25 million of the actual bond still occasionally trades at last trade price of $1230 or 5.66% yield. The credit rating has declined over the years because T (I think the new “AT&T” is really Southwestern Bell if memory serves) credit metrics have deteriorated over the years.

            1. Grid, Couldn’t you have PM’d me on this outstanding rating? Now I owe Martin a beer. Well, I’ll happily owe him a six pack knowing 079867AP2 still carries the BBB moniker, even though the financials already worked. Don’t rely on third party intel is my lesson here, but this was accretive Grid and I am in your gratitude. Long KTBA.

              1. Alpha, the funny thing is with issues like KTBA you were witnessing the birth…The predecessor to the birth of….the baby bond! See at turn of century very few $25 bonds existed for small investors. Just the big $1000 bonds with the cigar smoking fat cats ready to kill you on the spread buying the big boy bonds in small lots.
                So brokerages started buying chunks of specific bonds (usually uncallable ones if possible) and putting them in trusts and selling $25 certificate slivers laying claim to that amount of the bond held in trust. This way brokerages could sell bonds now to small retail investors. Of course times change and now baby bonds are issued on exchanges and the need for these types of instruments have disappeared. A few older issues like KTBA remain. And as you mentioned earlier these types can have some goofy tax provisions. I just did like you and put in tax free so I never had to learn to understand any of it.

                1. Good history lesson, Mr, History Teacher… I hadn’t really thought about how that transition happened and it makes sense. Grid, you’ve also known of unusual callability risks that could happen to a holder of some of these third party bonds when the underlying bond gets retired one way or another before maturity… What was the situation you knew about where the third party owners were left holding the bag and not getting anywhere near par? Though I don’t remember the details, I know it’s why I only own GJO with its underlying purely noncallable WalMart bond behind it.. I’ve never owned or looked at KBTA but have owned GJH in the past and probably a few others.

                  1. 2WR, you are running off deep into the weeds where you are heading. That was some very fascinating studying and took me awhile and some hand holding by another smarter person to understand what went on in those situations.
                    But in the more generic plays the brokerages were little thieve bastards too. Must of these issues are long gone. Not because of the actual bond being redeemed, but because of the fine print. The brokerages who issued these noncallable bonds held in trust at $25, were actually the call warrant holders themselves if they wrote it into the prospectus fine print. So…Not only did they make money selling these “faux baby bonds”, they made money calling them on you too. So after the 5 year holding period was up and they noticed the actual bond appreciated 20%, they would redeem your shares at $25, then take the bonds out of the trust and sell them in the market for another 20% gain. A nice way to make easy money. If bonds plummeted they would ignore them and let you deal with the paper loss. 🙁

                    1. The “Heads I win, Tails you lose” typical of banks….
                      But I will say this, it was an innovation that opened up the debt markets (and killed the huge bond spread that was so typical for small investors)

              1. Martin, outside of tax issues I guess, your only real concern of owning KTBA, instead of the actual 2095 bond would be if you came across this in a headline at some time….US Bank denies ever holding 2095 bonds in trust…or Somebody in the trust division lost or stole all the 2095 Bell South bonds….. Just teasing….:)

    3. Wilson: For me I think it is more of staying in the game but taking some chips off the table thing. I just sold several issues of preferred stocks, baby bonds and a couple of common stock issues. overall I am up about 20% since a buying spree last December. My profit covers this years and next years RMD, so I am just chilling for awhile to see where things go. 70% of my money is sitting in 2.45% CD’s that mature next May, I hate to see them go as I can’t get that on one year cd’s anymore. The rest is in Schwab MM at 1.7%. I did keep a few CEF’s (MMT, FGB, CHI and FOF) that I recently bought just to keep a few chips(5% of portfolio) on the table in an index sort of way. My only goal is to make my yearly RMD so my account does not go down yet and not be in the market any longer than I need to be each year.

      1. You’re a kindred spirit, Bill – I’m at the same stage where I’m more interested in having my accounts not go down than working to make them grow, and that, too for me means after RMD and waving bye bye to that hefty chunk as it heads out the door on its way to the Feds. FYI, a 1 year 2.25% APY CD is still available at Synchrony Bank right now…. 2.20% @ TIAA Bank. It’s not 2.45% but it beats by alot what’s available thru the brokers I use.

  3. I’m happy with bond-like pfd investments and plan to hold them like forever.

    On the other hand, if suddenly demand skyrocketed and pps’ soared, that might be another thing entirely…

    1. Will someone please explain, as simple as possible, the terms, call provisions,
      convertibility, ect. of SLMNP ?

      Thank you in advance as I find this site THE best source for preferred and ETD info.

      1. gridbird gave a detailed explanation on the sandbox page, very good analysis. My simple takeaway is that the acquisition by LYB voided most of the clauses and now it’s straightforward. However there is a chance they could get nasty and try to enforce a weird interpretation of one of the clauses, though this doesnt seem likely.

        1. Martin, admittedly, that is my only real concern. NOWHERE can I simply find the simple words since conversion…”Non redeemable, voluntary owner conversion at merger price of $42 times 19.111.
          But we know indirectly some things…LYB clearly states its a cumulative perpetual preferred stock that “may be redeemed any time at the discretion of the holders”….Also the original prospectus says they cannot be redeemed by company until stock price hit a certain level that was never achieved.
          I did however put a definitive end to why about 9,000 shares were redeemed at merger for $1003…Had to dig a bit…
          When merger was announced this triggered a “change of control event”. Which meant owners had a small window to convert based on then price of stock. There is a chart in this link (ya gotta dig to find as there are no page numbers to reference)
          https://www.sec.gov/Archives/edgar/data/87565/000119312515168290/d920013dex31.htm
          that shows “bonus conversions factors” based on price and specific year a change of control would trigger. A price point of $41.86 to $44.99 equaled a 4.7778 add to the original 19.111. So that made 23.8888 times $42 which equals $1003. 32.
          Now I have referenced annual SEC filing in Sandbox definitive writing its “owner discretion in redeeming”, but the actual merger SEC filings I cant find anything of value…This is it.
          https://www.sec.gov/Archives/edgar/data/87565/000119312518047369/d437735dex21.htm
          Page 54….Tell me what this means then we both will know!
          Section 6.12 Company Convertible Special Stock. Parent shall, to the extent applicable, cause the Surviving Corporation to prepare and execute an amendment to the Certificate of Designation with respect to the Company Convertible Special Stock, effective upon any Reorganization Event (as defined in the Certificate of Designation), for anti-dilution and other adjustments that shall be as nearly equivalent as is possible to the adjustments provided for in Section 8 of the Certificate of Designation. Prior to the Closing, the Company shall, and shall cause its Subsidiaries to, and shall direct its Representatives to, cooperate with Parent in connection with such amendment and the fulfillment of the Company’s obligations under the Certificate of Designation with respect to the Company Convertible Special Stock, as reasonably requested by Parent.

          So since I am dumb I have to stick to basics. I know the credit quality, I LYB states it is only convertible at my option, and I know a person I trust contacted LYB America and they confirmed the terms after that 30 day expired window reverted back to 19.111 times $42, losing the 4.7778 bonus.
          I know all 125,000 share owners were noticed of the change of control and the in effect $1003 payout and less than 10% a year ago wanted it. That speaks good of it also….”And that is that”, as Gump or someone like that who mirrors my intelligence level would say! 🙂

          1. Grid, I swear, you remind me of Gandalf in LOTR going down into the musty archives of Minas Tirith to pour over ancient manuscripts.

            You da man for digging up these long-forgotten gems of information.

            1. Inspy, even a dimly lit bulb gets an occasional surge of current through it to make it look brighter than it typically is. 🙂

          2. Grid, “… my intelligence level …?” Thanks for being modest but many like me can assert that level is extremely high and sharp, especially in this realm. And your generosity in sharing info is second to known.
            I appreciative all your helpful posts throughout the course of time.
            Thank you! No. 12

              1. For me, Grid has always been generous with his help and willing to take considerable time explaining arcane details to help lift me up out of raw ignorance. One of these days it may actually work.

            1. Gentleman, I drank a bit of coffee and wrapped up my SLMNP research. What little more I found just reconfirms everything. This was in A Schulman filings before closing last year…
              There have been no fundamental changes with respect to the Company’s convertible special stock as of May 31, 2018 or August 31, 2017; however, the pending LyondellBasell Merger discussed in Note 1 in this Form 10-Q will represent a fundamental change upon closing of the proposed Merger.
              Holders of the Company’s convertible special stock continue to have the ability to convert their convertible special stock at any time before or after the Merger closing date. If holders convert prior to the Merger closing date, they will receive shares of the Company’s common stock at the current conversion rate. Upon Merger closing, the Company’s convertible special stock will become convertible into the Merger consideration, with each share of the Company’s convertible special stock becoming convertible into the consideration that a holder of a number of shares of the Company’s common stock equal to the conversion rate immediately prior to the Merger would have been entitled to receive at closing. If a holder of the Company’s convertible special stock elects to convert during the period beginning at the open of business on the trading day immediately following the Merger closing date and ending at the close of business on the 30th trading day following the closing date, holders will be entitled to an increase in the conversion rate. After such 30th trading day, the increase to the conversion rate will no longer apply but the convertible special stock will remain convertible into the Merger consideration.
              This confirms the earlier pricing post where SLMNP had that 30 day window for bonus conversion to $1003, and then the window closed.
              This also, supports the records that Aarod kept where online member Steve past summer stated the now present conversion reverted back to the 19.111 shares at $42.
              Steve stated this…yesterday afternoon I spoke with LYB’s head of US Investors relations for 10 minutes and he confirmed and reiterated that the redemption price on the put is a little over $800.
              So everything tends to back up and support everything… The only thing that is confounding is the price. It really wants to trade price wise like a May 2020 redemption is looming. But nothing supports this and no records from LYB state anything but owner optional redemption, and prospectus status non callable outside of a conversion from a stock price that cannot happen, along with LYB US investor relations confirming also. It is what it is I guess…
              Aarod, Is the Pack Back? 7-1 after tonight?

              1. Grid, many thanks for going back through all this stuff on SLMNP. Thanks also to coffee. Having not had any myself, I’ll take the easy way out and ask you instead of going back to review my own research – do you know where this thought about May 2020 being a possible date when SLMNP can be called stem from? I certainly don’t remember reading anything that even hinted at a possible call date no less a May 2020 one…

                1. 2WR, I love my coffee! Let me clarify…There is zero info to indicate any possible way it could be redeemed, absolutely nothing, and prospectus, LYB filing comments, and LYB public relations indicate it cant.
                  This was just a personal baseless musing based on the trade price and yield…At todays pricing a YTC would be about a 3% meat on the bone play which would make sense if this was in deed the actual case. What doesnt make sense is in effect a BBB- issue noncallable QDI trading with a 5.9% perpetual yield with no negative YTC penalty. That just isnt out there today. We just seen a 5% QDI of similar or worse credit rating come to market. So why is this one 5.9%? You will have earned your investigative medal of honor if you can figure out why… As I cant and give up! 🙂

                2. 2WR, oops, didnt fully answer your question…The May 2020 date is in reference to that was the first possible initial date SLMNP could have forced a mandatory redemption if the price of the common was $52.33 or above.

                  1. So May 2020 is a date where a company [A Schulman) forced mandatory redemption could happen if the price of the now nonexistent A. Schulman common (non existent because it’s now a “consolidated subsidiary” of LyondellBasell) exceeded 52.33. It has nothing to do with the current 90.83 price of LYB itself. Right? OR, I wonder if the Schulman shares actually still exist on paper and some slimy lawyer could argue that the value of the shares has increased from the $42 acquired cost to above 52.33 thereby legitimizing an ability for LYB to force redemption? I’m not tying to say I think that’s possible – only trying to think of unconsidered possibilities…. Given LYB shares are down from about 115 in August ’18, you would think even that argument would be doubtful, but if so, it could introduce some possibility of future LYB initiated callability…. I don’t believe it – just throwing the idea out as a devil’s advocate.

                    1. Tag : us-gaap:TemporaryEquitySharesOutstanding
                      Fact : 115,374
                      Period : As of 06/30/2019
                      Measure : SHARES
                      Scale : Zero
                      Sign : Positive
                      Type : Shares Item Type
                      Format : numdotdecimal
                      Documentation : The number of securities classified as temporary equity that have been issued and are held by the entity’s shareholders. Securities outstanding equals securities issued minus securities held in treasury. Temporary equity is a security with redemption features that are outside the control of the issuer, is not classified as an asset or liability in conformity with GAAP, and is not mandatorily redeemable. Includes any type of security that is redeemable at a fixed or determinable price or on a fixed or determinable date or dates, is redeemable at the option of the holder, or has conditions for redemption which are not solely within the control of the issuer. If convertible, the issuer does not control the actions or events necessary to issue the maximum number of shares that could be required to be delivered under the conversion option if the holder exercises the option to convert the stock to another class of equity. If the security is a warrant or a rights issue, the warrant or rights issue is considered to be temporary equity if the issuer cannot demonstrate that it would be able to deliver upon the exercise of the option by the holder in all cases. Includes stock with put option held by ESOP and stock redeemable by holder only in the event of a change in control of the issuer.
                      Label : Temporary Equity, Shares Outstanding
                      Terse Label : Cumulative perpetual special stock, shares outstanding
                      Name : Accounting Standards Codification
                      Paragraph : 1
                      Publisher : FASB
                      Section : S99
                      Sub Topic : 10
                      Sub Paragraph : (SX 210.5-02(27)(b))
                      Topic : 210
                      URL (Will Leave SEC Website) : http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682
                      Balance : N/A
                      this info was from LYB’s 10Q from 8/2/19. It’s in reference to SLMNP. If anyone smarter than me can interpret that info.

                    2. 2WR, I appreciate your skepticism because I was trying to determine that myself. I can site you 2 other similar examples with 2 different results appearing to be unrelated to this. You have Wells acquiring a Wachovia perpetual convertible (WFC-L) and clearly (and easily) it was determined Wells converted Wachovia price to theirs and hence it now being a busted convertible way far away from strike price.
                      Then there was is trust convertible preferred (with a 2028 maturity)from Central Parking (CRLKP) that was taken private by KKR. The convertible feature disappeared when it went private. But terms went to redeemable at any time at $19.18 or hold until maturity $25 at 2028. Then KKR sold Central Parking to S&P Plus which is a public corp. Now it magically states in S&P filings it can be redeemed any time at $19.18 or at maturity at $19.18. Which is not $25. I dont get that. But it had a defined maturity when issued and was trust debt so it was set up differently than a perpetual convertible. But something happened in between the second and third control change. I couldnt figure it out though.
                      I have read the “change of control” provisions for SLMNP, but quite frankly dont understand the legalese. LYB posts in SEC filings and in debt section of their website it is only “owner optional conversion”.
                      I dont see it possible, but a redemption at $1000 in May wouldnt cause me grief but a forced $802 one would, lol… That just isnt happening as less than 9000 shares redeemed at $1003. Everyone would have tendered if there was that concern. I bet the ones converting probably were the one(s) who bought at $600 and just cashed in a big cap gain.

                    3. Woody, I can stumble through most of that, which largely confirms the thesis it is out of their control..Your above info supports why they have to use a specific accounting purpose mentioned in their annual filing….
                      At the acquisition date, the fair value was estimated using the Black Derman Toy binomial lattice technique, which models the decision to redeem or hold by considering the maximum of the redemption value and the hold value throughout the term of the instrument and chooses the action that maximizes the return to the holder. This model requires assumptions on credit spread, yield volatility and risk-free rates.
                      Basically for example what they are saying if CDs go to 15%, everybody and their dog would redeem at $802 and they would have to model that probability if it ever would happen.

                    4. I’m with you on that, Grid on no terrible grief if there’s a way to call at 1000 in May, but mucho if there’s a way for THEM to call at $802. That’s supposed to be MY escape hatch, not theirs….. Boy, where’s Rida when we need him? He’d never wonder (or know) about this stuff if he put out a tout on SLMNP. lol. I guess we’ll just have to wait to see if the selling has been motivated by end of fiscal year October adjustments at some mutual funds and nothing else and stops early this week if it hasn’t already. I realize we’ve seen this pattern happen before if not in October… BTW, either I had forgotten or didn’t know that LYB did a $1 bil 2049 4.20% unsecured note on October 10, originally priced at 98.488. That’s quite a spread vs SLMNP at 5.90% current. And no mention of SLMNP in Use of Proceeds…. “We intend to use the net proceeds from the sale of the notes to repay a portion of the indebtedness outstanding under our 364-Day Term Loan. As of June 30, 2019, we had approximately $2,000 million in aggregate principal amount of indebtedness outstanding under the 364-Day Term Loan. The current interest rate on borrowings under the 364-Day Term Loan is 2.799%.”

                    5. 2WR, I think our “Spidey Sense” is just over stimulated from reading too many numbnut Moron articles. It is what it is. Company wouldnt be stating “owner optional” redemption wording and accounting wise using “Black Derman Toy Model” on their balance sheet if it wasnt. And Steve is a sharp cookie and he had an extended conversation with the Big Cheese of LYB IR confirming this all.
                      The only wild negative scenario I can fathom is being its a rolled up subsidiary from one of their companies (its still called A Schulman) they somehow quarantine that subsidiary off if it got into trouble and just suspended payments. But there is the 25 bps penalty and put still there. Besides that division is doing fine. I cant manufacture a reason to worry and I tried my best….

  4. Tim, was there anything in the NRZ’s earnings call that caused you to sale the NRZ-B today? Given how hard it is to find decent yield in preferred stocks, I am holding on to my half position for the yield.

    1. No LarryL–when I bought it on issuance it was meant to be a ‘flip’, but it took months to make it work right for me.

      Historically I haven’t owned mREITs or perpetuals–at least for years. I may be forced back into them eventually, but for now I am looking for safer holdings.

      1. This distracted buyer bought 775 shs Nrzprb at 24.99 instead of Arrprb .
        I was upset , but the day went well and in 5 days or so i sold for a decent gain.
        Sure, it’s a bit higher now, but i was good.
        I went ahead and bought Arrprb and like all of you thankful for the gains.
        I picked up some SLMNP today because you guys did the research, thank you.
        I recently sold most of my Goodn and Mbino for a decent gain.

        This site is a treasure.

        1. Newman, just remember its just the best we can do with secondary research. Since we arent in “The Suites” office meetings, we have no way to know what present capital destroying crazy ideas they are scheming to destroy our wealth! :)…Our only real defense is appropriate moderate capital allocation to any individual position.

          1. Martin,Gridbird.. I am aware of the pitfalls . I have been in and out of the market since the 70’s. Mostly out. I found the real estate market a better bet.
            But when Real estate is too high , i play the market.

            Till Debt do us apart.

            Newman Abides

        2. I added to my SLMNP today as well. Compared to the last time it was at these levels, it’s not quite as good of a bargain because last time there was more accumulated dividend. OTOH, rates have gone down since then so relatively speaking, the yield is more attractive on SLMNP.

          What I really love about SLMNP is it’s essentially partially secured debt and not preferred equity. 80% of the value of SLMNP is secured by a guarantee that allows you to sell it for $800 at any time. I believe that would include bankruptcy, although I’d be selling mine at $800 well before they ever filed (like if the common stock went below $2/share). Since Only 20% of the value of your investment is at risk, you’re getting a great risk/reward.

          1. Landlord, its nice having the $802 put floor. But if I ever have to use it, the investment instantly becomes an “Ooopps” investment, ha.

            1. Grid, that’s true of any secured debt. If you’re a bank making a secured loan, you hope to never have to take possession of the assets securing your loan but the security of having collateral is what makes those loans so much safer than bonds or preferreds. SLMNP is priced like a preferred but it’s really 80% a secured loan. And, cash is the best kind of collateral.

              LYB is BBB+, so I’m certainly not expecting a bankruptcy but it’s not risk free, otherwise they’d be able to borrow at treasury rates.

        3. Newman–thanks. I’m glad to see I’m not the only one who makes order errors. More than once on eTrade I went to sell 500 shares of something and end up buying–their platform default to buy–so I end up with 1000 shares instead of 0.

          1. Tim, I got in a hurry once and put the amount of shares to purchase in price slot and price of preferred in the number of shares slot. Thankfully Vanguard blocked it, because it knew I didnt have over a million dollars in cash to pay for the transaction. That one would have left a huge wallet welt, lol.

            1. I’ve made more than one fat finger error in the past but I’m more careful now and know what to look for. I do a lot of my trading on my phone while hiking and it can lead to errors when I’m doing complex things like buying to cover a short position in puts.

      2. Tim
        I’m in shanghai and was too beat up to listen to the NRZ cc but read it. It sounds like they may well have to cut the payout but this is one of the best managed finance companies you will find. Cutting the payout could lead to a price decline but I would view this as a buying opportunity. As there is nothing negative going on here. On the other hand, even with a decline in payout the yield is going to be substantial and I would expect less sophisticated yield oriented buyers to continue to support the stock so very hard to estimate how big a decline could take place. If the preferreds go down, would definitely consider. Have a lot of the common and might lighten up now, so that could rebuy late tax selling or early next year. In my view this is one of the better managed firms around. While Fortress as a group may have issues, NRZ and FTAI have really strong ceos.
        good luck to you all and thanks your inputs. SC

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