Innovative Income Investor | Innovative Income Investor

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.