Innovative Income Investor | Innovative Income Investor

Return to Sanity? No One Knows

I give up on trying to predict these markets–I heard predictions yesterday and today of end of year SP500 values of 2,500 and I heard one of 3,700. 1 is a RECORD high and the other is 10-15% below current levels.

Personally I am highly suspect of current stock market levels–seems it is too optimistic–but in the end it doesn’t matter what I think.

Regardless of the predictions it seems as though some folks are predicting a return to normalcy in the 3rd quarter while others are looking for normalcy in early 2021. With the business destruction and desperation I am seeing I am more in the 2021 camp.

Yesterday I read that the airlines are so desperate for cash that they are selling ‘miles’ to the banks at large discounts–even with bail out money they all know they will not return to normal (or even 50% of normal) before at least the 4th quarter–if then.

Over in the comments this morning Charles M noted REIT CorEnergy (CORR) was taking a pummeling. Seems that Cox Energy, which accounts for 47% of the companies revenue has suspended payments. I see their common shares are down over $10 to around $14 while the companies 7.375% perpetual preferred shares (CORR-A) are off $4/share–around $14. The press release is here.

Hammerings like the one at CorEnergy are the type we will be seeing every week for the rest of the year–there is no visibility.

I know some folks are talking about large cooperative CHS. The company released earnings last Wednesday and they were typical with what we have been seeing from them for a couple years–almost all the earnings are coming from the refineries–very little from the ag end of the business. The press release is here. I suspect they will have reduced earnings from the current quarter as volumes of refined product will fall–and ag will not generate anything. codger mentioned today that their nitrogen investment (in CF Industries-CF) tossed off $5.7 million in net income last quarter–what a joke–$3 billion invested for $20-$25 million in annual income. That joke cost the last CEO his job.

Yesterday I bought a bit more VEREIT 6.70% preferred (VER-F) in the $22/share area–that was adding to current holdings.

Also as I mentioned yesterday I bought 100 shares of the Tri-Continental (TY) 5.0% perpetual--I paid a little below the $55 redemption price. I bought this as part of my 50-55% safe portion of the portfolio.

Here is how I am being forced (foreced because I have little visibility of the future) to set my investments up – like this—55% safe issues, which by their nature are lower coupons—maybe around 25% decent quality unrated issues-for instance American Homes 4 Rent (AMH) perpetuals and then 10% more speculative issues–i.e. mREIT and lodging preferreds.

Gabelli Funds Leverage Ratios

A few times a year I search through the various Gabelli Closed End Funds SEC reports to check the leverage ratios so I can update the CEF preferred spreadsheet with leverage ratios.

As most of you know closed end funds must have an asset coverage ratio at or above 200% on their senior securities which includes preferred stock and debt.

It is amazing that after being the 1st person to write about CEF preferred stocks more than a decade ago on my previous website ‘The Yield Hunter’ that I didn’t know that Gabelli publishes their leverage ratios every month on their website.

I want to thank James Craig for noting the Gabelli leverage page in the comments earlier today.

That’s what I love about having lots of commenting on site–some one always has the knowledge–and after 10 or 15 years of writing on the CEF preferred I now know it also.

Anyway the page is here–and it is updated each month.

A Few Opportunities Arise

The softer market today has opened a few opportunities for conservative folks.

The 5% Tri-Continental preferred (TY-P) has fallen back on lite volume–I bought 100 shares at $54.85–I see it wants to go a little lower. This $50 issue is callable at $55/share anytime. The CEF had a 4500% asset coverage ratio as of 12/31/2019.

There are bunches of utilities that have set back 1-3%–maybe there is an opportunity there for those looking.

Here is a list of investment grade CEF and investment grade issues (preferred and baby bonds). This is for folks looking for safety–but willing to take some interest rate risk.

Monday Morning Kickoff

Last week was a phenomenal week in equities as the S&P500 as the index it opened the week at 2578 and closed the week at 2789–a gain that was highly ‘juiced‘ by the Fed’s printing presses.

The 10 year treasury traded in a range of .64% to a high of .78% before closing at .73%.

The Fed balance sheet grew by $172 billion to a new all time high of $6.08 trillion–on its way to at least the $10-12 trillion area this year (my guess).

The average $25 preferred and baby bond closed last week at $21.84 after huge bounces in many areas–in particular mREITs. As expected CEF and UTE issues continued strong trading with CEF preferreds closing the week at $25.11 and all utility issues closing at $24.12.

So we are starting the week off with only small losses on equity indexes, but earnings season is about to begin. Whether investors pay too much attention is anyone’s guess , but does it matter anyway as the FED has taken the risk out of the risk/reward equation.

I am in the area of 62% invested and don’t really have a plan for the week. If there were bargains in CEF and UTE issues I would probably be a buyer–BUT I don’t expect any as they are already trading in the $25 area–and I want to buy lower.

Will the markets trade lower this week as the fundamental long term economic damage is finally admitted to? No one knows–but we always prefer to error on the side of being conservative.

Markets Closed Tomorrow

All markets in the U.S. will be closed on Friday the 10th.

With the long weekend the last 2 hours today has potential for some fireworks–one way or the other. With an OPEC+ video meeting tomorrow the markets are betting on a big cut in production–no matter the size of the cut (if any) it won’t do much for the huge over production of oil and gas globally–domestically we will have lots of bankruptcies in the oil patch.

Today I haven’t done anything–maybe I will look in the last couple hours, but my original plan has been derailed somewhat. While waiting for a market setback to get a little better pricing the FED decides to back stop everyone–welcome to Japan!!! I mean really buying junk bond ETFs – we used to call this the risk/reward–in return for a higher return you take some added risk. NOW you get a higher return with risk being removed.

Regardless of the FED I can’t plunge into this market–add some more issues here and there in a nibbling fashion maybe–but wholesale buying isn’t going to happen.

So off I go to see if there are some issues that I can nibble on a bit.