I’m Not Tempted by This Rally

There is no reason to have stocks up today–or any day really, as we have no new news and the economic damage being done is way beyond anything priced into equity markets.

I am aware of the rumored oil production cuts in Saudi Arabia and Russia–and all I can say is that this is pure BS. Maybe they cut a little–but no way they are cutting 10-15 million barrels a day–to help the U.S.? Not a chance.

Finally I did start to hear a little realism out of a airline analyst today–air travel won’t recover for at least 18-24 months (he said). I agree–and furthermore there are bunches of industries and sectors that will experience waves of bankruptcies–no printing press is big enough to bail out everyone forever.

Beyond various sectors going BK the U.S. consumer is going to be hindered for a couple years. When a huge segment of the population has no cash reserves for hard times they are going to max out their credit cards, default on their mortgages, and return their new trucks to lenders in giant numbers–to think they will have any money available to restart the economy is pure fantasy.

Sorry for the negative vibes today–I keep looking for the good news—any good news—to think we may be at a buying time–but it evades me. I am just too damned logical. Maybe I should just go illogical and declare a ‘bottom’ to the strife–but I don’t want to join those in the soup line so it isn’t going to happen.

Oh well–I wait–wait for some good news–treatments, peaking in NY, a vaccine–I could be waiting awhile.

Time to Keep Searching for Bargains–Carefully

With the selloff yesterday in most equity markets and todays weakness it is a good time to add a few shares here and there when they fall. Don’t get carried away, but a little here and a little there.

This morning I added a few more shares of the AllianzGI Convertible Income Fund 5.625% perpetual preferred (NCV-A) which is now down $1.30 on the day trading around $23.50.

Right now I am sticking to adding to what I already own in the utility preferreds and baby bonds and the CEF preferreds that are investment grade.

I am going to stay away from mREITs and Lodging REITs for now. This is obviously where the big gain potentials lie–but if they go broke there won’t be any gains at all. I bought some shares in mREIT New Residential 7.125% perpetual (NRZ-B) a day or two ago–but I could have bought it cheaper today–itchy trigger finger I guess.

I await ‘good news’ on the Covid 19 crisis before getting carried away and while I am slowing buying there is no use buying up dry powder until we can guess some good news ahead–and honestly there hasn’t been much good news, but we can reliably predict deep pain ahead.

Whoops – Hope You All Got Your AATRL

I bought a 150 shares in total in this ‘gift’ today at $30.97 (a 100 share buy and then a 50 share buy) to add to my 100 in the sock drawer. AATRL which is a $50 trust convertible issue from Affiliated Managers (AMG)—the yield at my cost was 8.3% for an investment grade issue.

I had wrote ‘mark my word this will trade much higher in the month or two ahead“. Looks like I should have written much higher in the next hour or two as shares are now at $36.59. Sometimes it is better to be lucky than good and we are lucky today. Thanks to all discussing this issue–gave me something to buy and write about.

Hope you all got the sock drawer stuffed down at $30 (or below for those that were in early).

Normalizing Markets? Moving Ahead

This is such a calm market today that one has to wonder about whether this is the calm before the storm.  I watch the news out of New York and shudder to think about a similar situation moving across the country.

Each day I see more and more layoffs and as we all know the median American has almost ZIP money in their emergency reserve–I feel fortunate to have months and months and months of $$$ in my cash reserves–I think I could get through 2020 without income–the result of having too much money in my checking accounts and having almost no debt.  I have to wonder what we are going to see on defaults on mortgages/rent, car payments and credit card debt.  Yes I guess the helicopter government money will tide folks over a bit–but not really for long a couple weeks–congress is already reloading the freebies.

Some businesses have seen decent business in the downturn–but I have to believe that folks ran up their credit cards to buy equipment for home schooling etc and that demand is going to fall flat in months ahead and those businesses are going to implode.

This week Friday we are going to have employment numbers for March and we already know they are going to be bad–but I believe the cutoff on the employment report is early in the month so next month will be disasterous.  I would post an economic calendar, but no use really as the forecasts and results are pretty useless for now.

So I hope to get back to normal on the website.  I have a lot of work to do to get caught up–ticker changes, suspended dividends etc. my time is very limited and these daily whipsaw markets have taken all my time.

I did buy some of the New Residential Investment 7.125% perpetual (NRZ-B) this morning–just a part position–no one should be buying full positions all at once–legging in remains a prudent act.  The company has declared their dividends today–whacking their common dividend, and it appears they are making moves to insure their viability.

I know folks have been talking about AATRL which is a 5.15% trust preferred from Affiliated Managers (AMG).  Right now this is a gift at $31/share (a $50 issue) –8.3% current yield.  The company has a $25 issue 5.875% debenture  (MGR) trading at $23.75–current yield of 6.05%.  I have just bought 100 shares of the $50 issue @$30.97.  I already owed 100 in my sock drawer.  Mark my word that this will trade much higher in the month or two ahead–folks are sleeping (except all our readers who have been right on it).

I see no significant difference in these 2 issues–the trust preferred was originally a private placement and both can defer interest payments for 20 quarters.

Calm Day? A Little Bit of Buying

On a relative level today is kind of a calm day–equity markets up 1.5% or so. I am very leery of this market–everyone is trying to pick a ‘bottom’ without firm data to really be able to see clearly.

I have made 2 purchases today–no sales of investments (except most of my Proshares Ultrashort SP500 (SDS) early in the day).

I went ahead and started a position in the RLJ Lodging $1.95 Conv Preferred (RLJ-A) @ $17.05–see it is up to $18.xx already. I chose this one because of the strong balance sheet–I think they will remain in good shape for a couple quarters without much business.

I also bought some of the AllianzGI 5.625% Convertible and Income preferred (NCV-A) which is an add to a previous position.

That will probably be it for today since I strongly believe we are in a bear market rally and opportunities remain to be seen in the months ahead.

I see the mREITs are getting hammered today while the lodging REITS are mixed. Seems to me that these sectors will take a number of months to sort out–maybe even longer.

So for now am just slowly moving back into the marketplace and staying with quality sprinkled with a few others that have more of a speculative twist to them.

Monday Morning Kickoff

Well here we go into what no doubt will be a wild week.

Last week the SP500 traded in a range of 2175 to 2629–an incredible 20% range–before closing at 2489.  This was a huge gain on the week and is highly likely to be a rally in a bear market.

The 10 year treasury, which for the time being has become fairly meaningless, traded in a range of .72% to .90% before closing the week at .75%.

The average $25/share preferred stock and baby bond closed the week at $20.40/share which was a gain of about 10% from the week before which was around $18/share.  mREITs are still the laggards at $16.01–even below shippers at $16.76.  We urge caution when buying the mREIT preferreds–after the bounce back in preferred prices last week there is potential for large losses if mREITs suspend dividends (those that have not already done so)–a 50% hair cut would like occur.  Investors should ‘leg in’ to any mREIT preferred purchases for another week or so.

Utility preferreds are at an average price of $24.12 which represents big gains for holders–we personally experienced these gains.  Additionally CEF preferreds closed higher and now are at $23.22.

A CASE STUDY ON CEFs

Investors should look at both Kayne Anderson MLP and some Tortoise closed end funds for what is total destruction.  Many of us feel fortunate that what was a ‘near cash’ type holding in Kayne Anderson MLP 3.50% term preferred (KYN-F) was redeemed a month or so ago.  KYN traded as low at $1/share–down from a 52 week high of $16.49.  Tortoise Midstream (NTG), which used to have some very nice term preferreds outstanding, closed last week at 99 cents/share–down from a 52 week high of $14.65.

Both of these closed end funds had broken leverage limits (they have debt and non traded preferred for leverage now), but it looks like while the common holders have been virtually vaporized, the senior security holders remain covered.

In the case of a very specialized CEF like the 2 above, which hold MLPs, they are self destructing when prices fall this fast.  The company has to sell securities to meet leverage limits, which causes prices to fall further, which requires more selling.

It actually looks like the companies are now in compliance with leverage tests as they did massive selling.  Here is an earlier statement from Kayne Anderson on leverage and how they handled it.

Where Do We Go From Here?

Well it has been a decent morning for me–not profitable, but not negative.

As you might suspect I bought modest positions in Proshares Ultrashort SP500 (SDS) late yesterday. As always when you hold these short positions it is a question when to unload the shares.

It seems like on these 500-1000 DJIA down days the safer issues (CEF and utility preferreds and baby bonds) are not moving much lower–seems like shares have moved to stronger hands after the illogical sellers unloaded them last week.

On the less than investment grade issues seem like there are still plenty of bargains being created–although todays bargains may be next week fire sales. Look at the big loser list.

This afternoon it will be interesting to see if folks ‘bail out’ prior to the close. Odds are I will hold my SDS position through the weekend–opening myself up to a spanking on Monday if we get a pop–thats life.

After the strong market performances this week my personal accounts have now moved nicely toward breakeven for the year–not quite there yet. I have 1 account down 2%, one down 4% and another down 5%. If I had more time to spend at the computer those numbers could be better–but I am satisfied.

Don’t Look Now But Markets are Irrationally Exuburant

Seeing the equity markets up this much today you have to know this is a bear market rally.

We have little knowledge (and the knowledge we have is suspect) on the extent of economic damage to the economy–but I guess it is ‘party on’ for the computers.

I just recapped the mREIT preferreds last night and today they are rocketing with some up 100%–this is the time you wish you had more than the 200 shares I bought. I won’t chase too hard here–they are bound to set back after today–and more as reality sets in.

I did nibble the Invesco Term Trust (IHIT) today as I bought some at $7.60 yesterday but today it was lower so nibbled a bit more.

I also nibbled more of the Gabelli Multimedia Trust 5.125% (GGT-E) perpetual.

So with a couple little nibbles I am done for the day I think. Better opportunities are ahead.

A Quick Look at mREIT Preferreds

As you all know many of the mortgage REIT preferreds fell fast and hard this week—either devasting investors or presenting a huge opportunity. We have seen large bounces the last 2 trading days, but prices remain very low.

Regardless of what these preferred stocks did this week and last this is a fluid situation and could change for the better or worse any day now so pay attention to your buys and sells.

I am suggesting that some investors with risk capital to devote to a more risky play look through these preferreds–the risk reward on many shares is very attractive–as long as one recognizes the risk. Remember all of these preferreds are cumulative dividends.

As most of you know mREITs leverage their mortgage portfolios with relatively short term repurchase agreements–using mortgages as collateral with an agreement to repurchase. If the collateral loses value the company must put up more collateral (per whatever the terms are in the agreement). This is where the counter party to the repurchase agreement demands more collateral–a margin call. If the mREIT can’t meet the margin call they try to negotiate a ‘forbearance agreement’ (an agreement to change the terms of the repurchase agreement for a while).

This week the Royal Bank of Canada has begun selling collateral from some of the mREITs below–apparently deciding not to agree to forbearance.

Let’s go through the line-up of companies and see where they are at as of this minute. The news flow is pretty active on these companies.

The mREIT preferred listing is here.

AG Mortgage Investment (MITT)

Preferred shares now in the $4.xx range. The company has announced they can NOT meet margin calls. Their press release.

AGNC Investment (AGNC)

This company hasn’t made any statements as of yet so it is assumed they met any margins calls made by counter parties. The company declared preferred shares on 3/13.

Preferred shares are in the $16-$19/share range.

Annaly Capital Management (NLY)

Preferred shares are trading in the $15-$18 area. The company has made no announcements so it is assumed they met margin calls if necessary.

Anworth Mortgage Asset Corp (ANH)

Anworth says they have ‘delayed’ declaring common share dividends–no mention of the preferred dividends. Their press release is here.

The preferred shares closed today in the $9-$10/share range.

Arbor Realty Trust (ABR)

No word from commercial and multifamily mREIT ABR. They have announced a $100 million in common buybacks.

Preferreds are trading in the $16-$17 area.

Arlington Asset Investment (AI)

No word out of AI. Preferred shares are trading in the $11-$12/share range.

Armour Residential REIT (ARR)

No word out of ARMOUR. Their monthly paying preferred is trading around $14.

Capstead Mortgage Corp (CMO)

Capstead made a statement on 3/18 but nothing since–statement at that time was positive.

Their preferred stock is trading around $18.

Cherry Hill Mortgage (CHMI)

No further word out of Cherry Hill since a 3/13 announcement of dividends declared.

The companies preferred stock is trading around $11-$12/share.

Chimera Investment (CIM)

No new word from CIM since 3/18 when they made an announcement of stock buybacks and successful ‘rolling’ of their repurchase agreements.

The companies preferred shares are trading in the $10.xx area.

Dynex Capital (DX)

No word from the company since the declaration of dividends on 3/19.

Preferred shares are trading in the $17 area.

Ellington Financial (EFC)

No word out of EFC at this point. Their 1 preferred issue is trading around $9.

Exantus Capital (XAN)

The company did NOT meet margin calls and default notices have been issued by one of their counter parties–Royal Bank of Canada. The company has rescinded previously declared dividends. The notice is here.

The company’s preferred stock is trading at $4.40.

Invesco Mortgage Capital (IVR)

The company did NOT meet margins calls and has suspended the dividend of both common and preferred shares.

The preferred shares are trading in the $7-$8 range.

MFA Financial (MFA)

MFA could NOT meet margins calls and has suspended all common and preferred dividends. The preferred shares are trading at $4.25.

New Residential Investment (NRZ)

No word out of the company. Preferred shares at trading around $9-$10.

New York Mortgage Trust (NYMT)

The company could NOT meet margin calls. All common and preferred stock dividends are suspended.

Preferred shares are trading at in the $4.xx area.

PennyMac Mortgage Trust (PMT)

The company has declared a reduced dividend on the common and plans to pay preferred dividends. The company has had no margin calls.

The preferred shares are trading in the $16 area.

Two Harbors Investment (TWO)

TWO announced the suspension of common and preferred stock dividends. The company met all margin calls.

Today the company announced the sale of all their non-agency mortgages.

Disclosure – I bought 100 share of the Chimera 8% perpetual (CIM-B) @ $8.80 and 100 shares of the Invesco Mortgage Capital 7.75% perpetual (IVR-B) at $4.60 earlier this week. I plan to build a small portfolio (maybe 1000-2000 shares) of mREIT preferreds over the course of the next week.

Strong Markets Make for a Nice Day

Well we have carried over some strength from yesterday into today–accounts look nice.

On the other hand the bid/ask spreads on some of the stuff I wanted to buy are pretty wide–many at $1 to $2. I have been adding to many positions, but not chasing too hard–if I have to pay 25 cents more than I want that is fine–but a buck or two per share–not.

I did add a perpetual back in with VEREIT 6.70% preferred (VER-F) down in the $19.xx area

I bought a little more of mREIT Chimera 8% FF (CIM-B). I had started a position earlier in the week–nice gains here as CIM has NOT suspended dividends as far as I have found.

I did sell my Hersha Hospitality 6.50% preferred (HT-E) for a few steak dinners. I want to build some sort of lodging REIT position, but thinking I am too early–so much pain coming in this sector.

So I have redeployed 5-10% of my cash, but continue to hold really ample amounts of dry powder.

Relative to the strong movements in the markets I am certain we will see lower prices ahead–we really know nothing on the Covid 19 and real economic damage is being done. My intention is to keep watching and buy when it seems opportunistic. With my conservative positioning now I don’t see selling much of anything.

A Decent Day–a Little Nibble Here and There

The day started off strong and I waited a bit before getting rid of a small amount of the Proshares Ultrashort SP500 (SDS) hedge that I had–then unloaded that and did a little buying–nibbling.

My nibbles were mostly adding to my utility baby bonds and my utility and CEF preferreds.

The only new positions this week were 100 shares each of the Invesco Mortgage 7.75% perpetual (IVR-B) at $4.60/share and the Hersha Hospitality perpetual (HT-E) at $3.20/share. Purely speculative–not real income investments, but priced for bankruptcy. Both companies have suspended all dividends.

Today as we head toward the end of the day we need to see if this is a ‘buy the rumor’ ‘sell the news’ moment.

We know that we will see various aid packages soon from the government, but these do not solve the Covid 19 problem and the coming steam roller that will totally destroy profits in many industries–that is why I am just a nibble here and a nibble there–using a tiny amount of dry powder, but mostly keeping lots ready. We will still be dealing with the Covid 19 fallout 9 months to a year from now–maybe longer–so I see no reason to ‘back up the truck’–more like load my car trunk time now.

Careful on Politics

I just spent 30 minutes going through comments which Matt had pulled out of the comment stream from yesterday.

I went through and removed a fair amount of the comment–I put a note in it–Tim removed the comment–or something like that.

In these crazy times we still need to avoid political commenting—all it makes is for ‘bad blood’–and in the end we end up being like the old Yahoo boards–totally out of control.

When Matt pulls out comments it temporarily ‘bans’ the person. As I went through and edited the comments the person is no longer banned.

As I mentioned before only 1 or 2 people have been permanently banned and I want to keep it that way–you folks are all too damned smart and we don’t want to lose your brain.

mREIT Invesco Mortgage Capital Can’t Meet Margin Call – All Dividends Suspended

mREIT Invesco Mortgage Capital (IVR) announced they could not meet a margin call on borrowed funds.

With mREITS they finance the business with repurchase agreements–generally shorter term loans and they use their mortgage portfolio for collateral. If the value of the collateral falls they need to either come up with cash or addition collateral.

The company’s preferred shares tumbled and are trading in the $4’s right now. All dividends are suspended now.

The preferreds can be seen here.

The company press release can be read here.

Are These Companies Going Out of Business??

Are the lodging REITs going out of business? Obviously with all the turmoil in the world we never know for sure, but honestly I don’t think most of them are going bankrupt. Some will go bankrupt without a doubt–and I would think that Sotherly Hospitality (SOHO) and Ashford Hospitality (AHT) would be the weaker companies. They simply have too much debt and while some debt relief will be secured I am not sure it will be sufficient.

On the other hand it seems reasonable that most of the others will survive–after a year or maybe 2 of extreme turmoil.

Based on purely what seems a reasonable risk/reward proposition I bought 100 shares of Hersha Hospitality 6.50% cumulative perpetual preferred (HR-E) for $3.20/share. The company suspended dividends on the preferreds a few days ago and I think the wise companies are immediately suspending common and preferred payouts–they are realist. The preferred shares are priced for bankruptcy-maybe I will have a 100% loss–or maybe I will have a 800% gain.

Here are the lodging REIT stocks.

After looking at the lodging REITS I look over at the mortgage REIT preferreds–decimation. Two Harbors Investment 7.25% cumulative perpetual fell $7.25 today to close at $7.75. The mREITs have experienced massive stress as asset values had moved lower thus setting off some margins calls. I fully expect the mREITS to suspend common dividends this week with a likelihood of preferred dividend suspension as well. I didn’t buy any mREIT preferreds–but I am watching and may start some buying.

mREIT preferreds are here.

This may or may not be the start of a portfolio of decimated preferreds. When previously solvent companies see their preferreds down at $3 to $7 is it reasonable to believe some these companies will survive?

Even for a conservative income investors is the reward of 300% to maybe 1000% worth it. I think it may be – but only time will tell.

Just food for thought.

Let the Beatings Continue Until Morale Improves

The baby, the bath water and the bath tub are all being tossed out the door. I would love to buy–but I can’t!

There is no use being a hero until we can see action relative to stopping the spread of Covid 19. I note that Wisconsin just went ‘shelter in place’ and I am certain within 72 hours Minnesota will do the same.

Forget about the Fed action and the clowns on capital hill. The Fed is keeping the financial system from imploding, but this does zip on arresting the virus spread and the government really seems more inept than I already thought they were.

I have been down this road with the Federal Government back during the Gulf Wars. 1 of the businesses I managed for Pillsbury was the production of MRE’s (meals ready to eat) for military use. 6-12 months or so before the war started the department of defense asked us to ramp up production–of course we had no capacity for increasing–so they threw millions of dollars at us for a new production line. Being specialized production equipment it took months and months to install the line. By the time we had the line installed they no longer needed it and they simply gave us the equipment. Later we donated the equipment to Rutgers University Nabisco Food Research Center.

So I expect by the time the Fed government is all ramped up we won’t need them anymore–can’t count on the Federal government for much.

Anyway I still watch the spreadsheets for bargains–just not taking the bait yet.

Here is the Lodging REIT preferred spreadsheet--huge bargains, but dividends are being suspended–they are cumulative. Thus far Hersha Hospitality (HT) and Sotherly (SOHO) have suspended common and preferred dividends. Pebblebrook (PEB) has reduced their common dividend to 1 cent and are monitoring preferred dividends going forward. RLJ Lodging has gone to 1 cent on the common. Is HT preferred worth the $3/share price right now? Don’t know but the risk reward is pretty juicy–we’ll see.

Monday Morning Kickoff

I am suspending the more normal Monday Morning Kickoff and just touching on more recent news for the day and week ahead.

The average $25 preferred stock and baby bond closed last week at $18.02 which is $1.52 higher than where it was on 3/18 (last Wednesday).

The Fed Balance Sheet has gone parabolic and was up over $300 billion last week. Of course at this point we know it is going massively higher.

Just 30 minutes ago the Fed announced quantatative easing of giant magnitude, buying muni bonds, commercial real estate mortgages and certain investment grade corporate bonds. The Fed took off any limits to the amount they may buy–ramp up those printing presses!!!

With the announcement from the Fed equity futures bounced nicely and right now are up about 1%–much better than overnight when futures were off 5%. I am highly suspect of any bounce as the uncertainty and unknowns are just too high–but just the same a bounce would be good (in spite of the lose I will take on my short position).

I expect to see a steady stream of companies everywhere either slashing or suspending their dividends–liquidity is king. Those companies that suspend now are likely to be around next year—those playing hero with their dividend are fools. As some have noted in comments some companies are going to pay dividends/distributions with stock issuance–seems like a reasonable alternative to cash.

So where do we go and what do we do?

I really doubt any buying should be done in here–there will probably be a number of better opportunities in the future–there are lots of potential bargains out there–but they may be better by the end of the week—no one really knows what 10-15% unemployment looks like—nor do they know what -15% GDP (or some such number) looks like.

Stay safe–lots of dry powder (and for some 100% dry powder). We are around 50% cash—and hope to remain there, but this can change rapidly, so we will see.

Looking Back and Looking Ahead

1st off I am thankful to all for keeping the comments throughout the website fairly civil–a little bit of testiness here and there, but not terrible given our current situation. Thanks all. I did find out that my spam parameters for ‘four letter words’ doesn’t include ‘shitstorm’–it seems pretty descriptive so I will let that go.

Last Friday morning–very early (I was up at 3 a.m.) I looked at the futures market and smelled opportunity as it was up 900 points–again. The market had been yo yoing fairly predictably but I ‘felt’ (a technical term–meaning a gut feeling) that this was not to last this time–which is why I wrote on Friday morning to ‘get your portfolio’ in order.

In a ‘even a blind squirrel finds a nut’ moment the market did exactly what I thought would happen–in particular leading into a weekend and with the day being a quadruple witching day.

I unloaded everything I wanted to be rid of in the 1st couple hours and then I went ‘short’ via the Proshares SP500 Ultra Short EFT (SDS). Then each little bounce I added to my short–by the time the day ended I was up 1.5% on day. At this point I am mainly holding utility baby bonds and preferreds and CEF preferreds. I held my short right into the close as I would be shocked to see market shoot higher Monday–if it does I am going to get spanked–but I will take the risk. My cash level is now around 50%.

Here is what I see happening in the days ahead. Continuing shutdowns throughout the country–I see no reason whatsoever for this to change. A continuing economic high stress level–everywhere. Yes there are some businesses that are benefiting from the Covid 19 outbreak, but unemployment and business shutdowns will overwhelm any benefits. There is no immediate relief with potential treatments–yes they are out there, but not close to being a known effective treatment.

Yes–for the time being I am very negative–on markets–but I am very optimistic on the future. Remember the $7-8/share preferreds back in 2009? I think we will see more chances for them in the next 2 weeks to 30 days.

So my plan is–watch–no buying and determine if I have to start backing out of some utility positions–I hope not but we all need to have cash–which means we have to preserve the stash–one way or the other.

If we get a sharp market run higher tomorrow I am going to have some losses on my short position–but I don’t think that will happen, but we will have more of an idea in an hour when the futures markets open up.

Use Friday Wisely to Position Portfolios

Very early (4 a.m.) in the day it looks like we will have a strong opening to equity markets–too strong as far as I am concerned. But we can use Friday to continue to do work on our portfolios.

I did do a bit a nibbling yesterday on investment grade issues–but I did no selling and I still have a few perpetuals that I would like to sell–so I will consider doing it today.

Using the S&P500 as a reference I have to believe that we are a long way from the bottom of the market. If one was to assume that we had down GDP in the 1st quarter of say a few percent, but then a fairly massive drop in the 2nd quarter of 10% or even more–is there anyone out there that truly believes that we will have anything short of a substantial recession?

Why are airlines still priced high–relative to the situation? Delta is $24/share this early a.m.–shouldn’t it go to $5 or $10? I think the only reason is because of government bailouts–not sure that should hold shares prices up–these bailouts are going to come with many strings attached. As a side note Compass Airlines, who is a regional air carrier for Delta and American Airlines announced yesterday that they are closing down.

Why are all the indexes off just 30%? Is there really going to be a V bottom? Not sure that is possible–it makes no sense. I know in my small town I expect maybe 25% of the small businesses to fold–they were mostly making it just day to day prior to Covid 19.

Anyway there are no answers to my questions–but it would seem that equity markets will take a turn lower soon because economic slowdowns of the magnitude I think are coming are not baked into these markets.

I will continue to position and nibble as opportunities present themselves–but I will keep plenty of powder available.

Hope This Finds All Well

I would call this the ‘pause that refreshes’–refreshes a lot!!

Likely you all have good gains today, but have a long way to go to recoup losses from the last week or so. I was very happy to see some nice gains–and right after the market opened today I was able to nibble the utility issues as well as the CEF preferreds. Not big buys – just small adds. No sales at all as I have been out of the office most of the day.

Certainly trading today seems a bit more normalized–no one knows if it will last.

BUT you know there will be plenty of turmoil–we will still be sorting out the companies that survive and those that are ‘dead ducks‘–and there are going to be plenty of dead ducks. Maybe though we will get to those 1-2% movements in the market instead of 4-8% moves–speed kills.

Who knows–maybe we will start to see new issues in a couple weeks–maybe I am overly optimistic–one day at a time.

Incredible Move Lower Yesterday!!

NOTE–I would very much like to participate more in comments etc., but I have never been more busy with my real business (appraising) so am forced to be out of the office most of the day.

I don’t remember a move like today in preferreds and baby bonds–not just the out and out drops, but the moves lower with giant bounces in some issues. Absolutely crazy.

Now I do remember very scary times in 2008-2009, but totally different in terms of the causes–at least we could identify the causes and over the course of weeks and months a fix could be implemented. NOW we know the root cause of the decimation, but the fix will take a very long time. Blood will continue to run in the street until we can ‘corner the beast’ and kill it (or at least treat it).

As you all know–simply by looking at any number of the spreadsheets on this site that there are dozens of preferred issues trading at $10/share and under–all of which were $25 just a couple weeks ago. It is your job, and mine, to figure out who is going to survive–and which of the companies are going to go broke. All made more complicated by the knowledge that the Federal government will bail some out–while others are left to be liquidated.

I want to believe that some or all the mREITs will survive–this is where much of the potential opportunity lies. In this list of mREIT preferreds.

Of course I have mentioned the CEF preferreds and CEF preferreds–and have nibbled with starter positions–now all are at lower prices than just a couple days ago–but it is just a nibble, nibble.

For some folks wondering about coverage ratios on CEF preferreds I just did 1 spot check tonight–on Gabelli Equity (GAB) and even after all the down draft in assets (commons stocks) the CEF has a coverage ratio of well over 300% (as of 3/17/20)–so coverage ratios on the various Gabelli funds are holding up, but based on history I fully expect Mario Gabelli to file shelf registrations for all their CEFs to be ready to sell wheelbarrows full of common shares.

I think that some nice money will be made on mid quality preferred issues – as I have mentioned American Homes 4 Rent (AMH) comes to mind–they have 5 preferreds outstanding. There is a 6.5% coupon issue trading at $17.95–some time soon nibble, nibble. Single family housing–rentals–there could be short term pain but in the end they will thrive.

Annaly Capital (NLY) the giant mREIT has a 6.95% issue trading down around $10.95–some time soon nibble, nibble.

One last note–nibble, nibble can be 25, 50 or 75 shares–most of us are used to buying 200 to 1000 shares (some much more)–remember since we are not paying commissions we can buy any amount–buy small and spread it around–you can come back time and time again for a small nibble.

The Losses are Out of This World–Update

UPDATE–the average $25 baby bond and preferred is now at $16.50/share.

Leave the office for 90 minutes and come back to dramatic destruction–I mean my little bit of New Residential NRZ-C down 40%–yikes!! I had a sell in, but obviously it didn’t trigger.

Utilities preferreds and baby bonds off 20%–the portfolio looks like swiss cheese (no disrespect to the Swiss people).

I would say there are massive bargains out there–but WHO can define todays bargains.

While we are off 10% for the year I feel fortunate–lots of cash on hand in accounts and some very successful hedging (until the last few days) have minimized losses.

Unfortunately the writers on Seeking Alpha are all playing the hero roll and continue to write ‘buy, buy, buy’what fools. Folks that interpreted their (the writers) success over the last few years as skill and wisdom will be down 75% before this is over–it may take a lifetime to recoup their loses–but most will liquidate and never ever invest again–instead opting for a mayonnaise jar in the back yard as a safe haven.

Early this morning I sold some of my VER-F 6.70% preferred and my AMH-F 5.875% perpetual–put the money in the cash stash.

Now I wait–obviously I am still heavily exposed to utility baby bonds, preferreds and CEF preferreds. I want more–but I guess I want them cheap–I mean really cheap.

Everyday–Get Up and Plan

Yesterday was a most restful market day for investors–and while common shares were up our holdings were up just a small amount–a very small amount.

Each day I get up, earlier than I normally get up, around 5 a.m.–it takes me a couple large coffees and an hour to get overnight news reviewed.

Yesterday I did no buying or selling–in some ways being out of the office and not fixating on news was refreshing.

My plan today. We know markets will open weak so I will simply watch. Odds are that an early weak bounce will come, but if trends are to be followed we could see a close down 10% again by the end of the day.

If we get a bounce of any magnitude I will sell a little more in the perpetual arena–I don’t hold much, but I may convert more to cash awaiting the bottom (I have no idea when this will happen). Nothing pisses me off more than selling losers–but a loss is a loss and I am not holding to watch a 25% loss go to a 50% loss.

I don’t think I will do any buying–I have so little visibility in anything regarding the economy it is getting harder and harder to pull the trigger BUT I will–sometime in the future.

As I have said many times–if you can not sleep you need to sell a little more. If the money you have is essential to your retirement or lifestyle you need to keep more dry powder. The time will come when this can be redeployed in a very profitable way, but that time is not now and no one can predict whether that time will occur tomorrow, next week, next month or even further out.


Section 18 of Investment Company Act of 1940

I note many questions, comments etc on coverage ratios of closed end funds (CEFs).

I am in the office for only minutes but am posting Sec 18 here at this link–

Capital Structure of Investment Companies

This lays out dates etc relative to coverage ratios–and what happens if the company break coverage rules.

Practically speaking – I wrote on how this was handled back in 2009, 2010 and 2011 by the Gabelli companies on Seeking Alpha.

The article is here–but the links are old and no longer work.

A Bit of Gyration

Everyone needs to remember that as we get calmer markets (hopefully soon) it will take plenty of time for income securities to move much higher.

It is true that the fall is much more rapid than the rise will be–maybe you are down a $1 or $2 on some issues (or more)–it may take most of the year to recoup this loss.

Looking at my accounts this morning–obviously early–they are up maybe 3/10%–I would be glad for any gains whatsoever at this point, plus we can continually analyze and nibble if appropriate.