All Markets Awaiting Fed

We see that stock futures are up right now–but anything that happens before 1 pm (central) won’t mean much for the last few hours of trading.

I think that we will see a fairly quiet market this morning because while I think I know what will happen at the Fed announcement and press conference one can’t really predict how investors will react–will common shares fly by 500 points up–or drop like a rock by 500 points.

I have noticed, just in casual observation, that income investors have been mostly buyers (those on this website and other similar websites), with some sitting tight (not buying or selling) like us and a smaller number of sellers.  If we held our income issues outside of IRAs we maybe would have booked some losses, but most of our issues are in IRAs.

FOR CONSIDERATION

For those investors looking for extreme safety we have been watching the closed end fund AllianzGI Convertible and Income preferreds.  NCZ-A with a coupon of 5.50% is trading at $22.98 for a current yield of 5.98% and NCV-A with a coupon of 5.625% is trading at $23.65 for a current yield of 5.95%.  These 2 issues are the highest rated $25 preferreds in existence with a AAA rating from Fitch. These issues just went ex-dividend so the current yields are ‘stripped’ for the most part.  We own a little of each and will likely buy a bit more next week.  These shares, because they are perpetual preferreds, could have a fair amount of share price movement, but the level of safety is  excellent

28 thoughts on “All Markets Awaiting Fed”

  1. Scored 400 more KTN at $28.78 today and still snagging that $1 plus interest payment in about 10 days. Sweet!!!….How about NISOP. What a preferred rock star…Pushing a half billion in value through the worst preferred market period since 2013 and closed at par today.

  2. Question: has anyone received their GLOP-C dividend payment yet? Purchased the shares on Fidelity in mid November (ouch). Wasn’t Div payment date 12/15? Any idea what is a reasonable amount of time delay for it to show up in an account would be? Many thanks

    1. I received the dividend for the B shares on the 17th. B and C have the same distribution dates.

  3. For what its worth, I just sold my Brunswick A ~25 to buy Brunswick B ~24. which increased the yield to near 7%. Both are investment grade from all three rating agencies if I’m recalling what Tim said correctly.

  4. Does anyone have any comments concerning the 2 exchange traded debt securities of Brunswick. BC-A 6.5% ($25.06) and BC-B 6.625% ($24.34). They are rated Baa2/BBB-.

    1. I own some BC-A, bought at higher prices, sadly.
      Just holding on for now, next week is XD, so with that payment my effective cost will be below par – a little cold consolation.

      1. I also swapped BC-A for BC-B. I not only like the fact that we have 3 companies rate this as IG but it’s a diversified business.

  5. Does anyone have any comments concerning Brunswick two exchange-traded debt securities, BC-A 6.5% ($24.92) and BC-B 6.625% ($24.00). These securities are rated Baa2/BBB-.

  6. Try to get more HBANO, 6.25% regional bank, IG by Moody, BB by SP. Actually trading above par. Picked up 400 shares of AFC from selling MH-D and AFSI-F yesterday. AFC has been callable for a very long time. At the time introduction it was rated way Below IG. AFC is a baby bond issued by ARCC. Bruce Miller believes BDC is troublesome in a recession. However, ARCC survived way before 2008 near melt down. Dividend was reduced for the common, it climbed back very nicely since. Besides, AFC at $6.875% is a decent yield at $24.97 with ex dividend on 12/28/2018. I really do not see double digit inflation anytime soon.

  7. Hi Tim, I was wondering if you could elaborate a bit why CEF preferred are required to have 200% asset coverage for senior securities. That would make them as good as treasuries, except with no maturity, right? Or am I misinterpreting this. Thank you.

    1. Hi Jay–it simply is the law–the SEC act of 1940. Thus they can have leverage while the investor still gets quite a lot of protection.

      Here is the SEC Act of 1940–I read it once–long time ago.

      https://www.db.com/tcr/docs/Investment_Company_Act_1940.pdf

      The CEFs are very safe–most of them (and not including Business Development Companies which are also CEFs) are very highly investment grade.

      Also I outlined the ‘ACT” in an article in 2011–7 years old but it still applies.

      https://seekingalpha.com/article/265958-preferred-shares-of-these-4-cefs-for-a-conservative-outlook

      Essentially what happens is if the NAV of the common shares falls they have to sell more common shares to boost their leverage ratio. In the article above I show a Gabelli CEF which almost broke the leverage ratio requirement so they sold common shares like crazy until they had coverage of over 600%–wow. This means that for every dollar of leverage that was outstanding they had 6 dollars of coverage—and of course the preferred holders have ‘claim’ on all the assets before the common holders get even a penny.

      1. Thank you Tim, much appreciated. I especially found your seekingalpha article very helpful. Trying to decipher the legal lingo of the prospectus or those SEC docs is beyond me.

      2. Thank you Tim, much appreciated. I especially found your seekingalpha article very helpful. Trying to decipher the legal lingo of the prospectus or those SEC docs is beyond me.

    2. Whoops–I misspoke on my Gabelli example–they sold common shares to the point of where they had 1000% coverage.

    1. 8.2% YTM, which is less than 3 years off. Unless the company goes bust it’s hard to beat.

      If I didn’t already own a mountain of it I would buy more.

  8. If the FED doesn’t raise I think we see a huge rally. If they do raise I believe most of the downside is probably already built in.

    1. 35spline–you may be correct–but I don’t know if I would bet $1 either way.

    2. I have also seen suggestions that a failure to raise today could lead the market to drop. What appears to be the middle ground is to follow through with the expected raise today along with commentary that future raises will be slowed depending on data.

      1. Hi furcel–yes – that is why I wouldn’t bet more than 1 dollar on reactions–a failure to raise might lead folks to believe the economy is extremely weak—I think the FED is in a corner of some magnitude and should raise but address the future as well as the balance sheet runoff (now at 50 billion per month).

  9. I’m looking at NCZ-A as one of my first CEF preferred buys. waiting until later today to see what the price movement, if any, is.

  10. I really appreciate your “For Consideration” ideas, for those of us that don’t have our CFA!

    Thanks Tim!

    1. Hi Gumfighter–you’re welcome. These 2 issues are excellent for safety and around 6% isn’t a terrible yield.

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