Bloody Monday

After the very weak trading in all equities last week it is no real surprise that today is extremely red.

Income issues–preferred stocks and baby bonds are getting hammered as well–more in the investment grade perpetuals than in the shorter term baby bonds and term preferreds–as expected with the 10 year treasury yield spiking up to 3.27%.

Lots of the investment grade issues are down 2-4% and on the surface look like good opportunities to buy–of course it is likely in a month they will be better opportunities. There remains no hurry to deploy “dry powder’ into this market.

Investors should be identifying target buys–i.e. pick out investment grade issues now providing good current yield–of course we all are different so it depends on you risk tolerance .

If you haven’t already you might want to download the Google Sheet that has all the income issues on it. This sheet is sortable by sectors, credit ratings etc. This sheet is the one I like to look at because of the ability to sort for what I am looking for. You can find the sheet here.

26 thoughts on “Bloody Monday”

  1. Beware talking heads on the financial networks regarding market timing. I find them to be mostly momentum players.

    I remember a USA Today article from late 2002 or early 2003 after the market decline at that time. There were many well respected analysts who were asked how low the market could go. All of them said lower…quite a few said much lower. No one said higher. The day that article was published was the actual low.

  2. Preferreds were different today compared to the extended downturns we have seen so far in 2022. Many of us have posted “bond math” facts that low coupon, typically investment grade issues, will fall further than higher coupon issues as interest rates rise. No secrets there and that has held pretty well year to date. A typical down day would have low coupon issues fall 3X more than the the full group of preferreds.

    Today, that ratio was NOT 3X, but was 1.4X which is a significant change IMO. The “canary” low coupon portfolio I track was down -3.82% compared to -2.74% for all preferreds. Some other metrics I use show this was the broadest in quantity of tickers sell off since 2020. Even baby bonds/terms were hard hit being down -1.9%.

    My interpretation which might be 100% incorrect is that we saw panic selling: “get me out at any price” type trades, whereas YTD it has been more orderly death by a thousand cuts type. I don’t know if any of this was forced liquidations due to margin calls.

    I agree with Gary that today looked a little bit like a March 2020 kind of day. We had some non-preferred/baby/term trades that looked a lot like March 2020.

    At 12:25 Eastern time, SP/NAS futures are strongly up, so maybe Tuesday will be more kind to preferreds. I would still expect to see some panic selling, even if the broad market is up.

    1. Yes, last years low yield hq issued preferreds have still not returned to their bottoms from a month ago, despite onward yield march. They need to stay in line behind the woodshed to get taught a few more lessons.

  3. 2/10 yr inverted now. Futures looking positive ( for a deceased feline rebound)
    The VIX rose Mon- but stayed pretty range bound, even dropping a bit before close. Still- 35 is a long way from Mar ’20 high of 85
    Hang-on folks.

  4. Worst day I’ve had since Mar of ’20, lots of powder, but almost wish I was totally out & ready to buy-in again.

  5. Five Time-tested Strategies For Surviving A Bear Market

    5% down – Buy the dip.
    10% down – Be greedy when others are fearful.
    15% down – You don’t lose any money until you sell.
    20% down – Throw away your cellphone to avoid the margin calls.
    25% down – Mom, you were right about buying Hummel figurines. And, oh, can I sleep in the basement again?

  6. My SPX bottom target is 1500. If you look at your charts, that was the high before the bear runs of 2000 and 2008. Unsettling to think it could go that low, but after such a huge debt orgy, who knows?

  7. Well I’ve never seen down 20% on the S&P when it wasn’t a buying opportunity.

    As for my pfd’s ……I see some high quality 7’s even pushing 25. I’m just going to put some more to work tomorrow if the blood bath continues.

  8. ” A mere flesh wound!”
    Monday, October 19, 1987, now that WAS a real bloody Monday. Dow/SP down ~ 24%. . . .

    Still have the VHS tapes of FNN (Financial News Network) which was before CNBC and/or Bloomberg network existed. Pure panic aplenty.

    1. Hey Tex–I used to have a VHS of FNN as well but have lost it in a cross country move or 4. I remember some of the younger talking heads looking green with fear.

      1. There are a few takeaways from the 10/19/87 crash that youngsters might not know about.

        1) The Friday before that on Wall Street Week with Louis Rukeyser , Martin Zweig who was a technician, said that he expected a crash the following Monday. Pretty incredible call but Zweig was a darned good money manager/technician so he was right more than he was wrong.

        Worth watching the video for a few minutes in you are interested in financial history:
        https://www.youtube.com/watch?v=2MyToTwag34

        2) FNN was the only 5 day/week financial programming on national TV to my knowledge. Wall Street Week was on Friday’s only on PBS. Nightly Business Report out of Miami was on some PBS Stations.

        3) FNN was far superior IMO to what we have now with CNBC and/or Bloomberg. Bill Griffeth and John Bollinger would sit and calmly talk about the market for the full hour. When they had a guest, he/she would be there the full hour also and have a back and forth with the hosts. There was no pressure for sound bites. There was no pressure to be a permabull. They had one older fellow whose name escapes me right now that was the “fed whisperer” of his time. I recall Cramer saying he learned more from this fellow than he did from Harvard Law School. John is still active I hear and I do not know about Bill.

        1. as a teenager growing up in small town Ontario I started watching Louis Rukeyser in the mid 1970’s on Erie PBS Friday nights. Had no idea about investing then but enjoyed his droll sense of humour and his puns. Listening to him and his guests was the beginning of my interest in the stock market.

        2. Marty Zweig was one of the best panelists on WSW. I still remember him saying, “don’t fight the Fed.” Holds true today.

          1. Marty Zweig lived about 5 houses from me in (Emerald Hills) Hollywood, Florida. He use to have his corporate office inside his garage where he hand-wrote his newsletter (beautiful teak home). My Dad was very good friends with him as they would meet at the local country club and he usually would tell him, “when markets are challenging stay in cash until you are sick of it and then buy the best investment possible.” Many years later Marty was very ill and called from Fisher Island after being temporarily released from the hospital, he told my Dad he needed a liver transplant said he wanted to get together, they would play golf and cards again soon; sadly, he died a few months later. We all lost a great man, RIP Marty.

    2. I was on a muni bond trading desk on that day with the OTC trading desk diagonally right across from us… Watching those guys with everyone wondering what the hell to think was an experience….Nobody on the muni desk was paying attention to munis at all either. We all were trying to figure out the carnage. I also learned a very expensive lesson that day unfortunately… Heading into Monday I owned puts on the S&P and remember the S&P was down about 5% on that Friday, so I was already up big on my puts. However, I was very naive about trading options in particular back then (not much different today – lol) so during the day, figuring I had a staggering profit locked in, I entered an AT THE MARKET sell for my puts….. Needless to say, they ripped my lungs out and I lost out on having placed myself in a great position to have a gigantic win on a gigantic down day…. You can’t get those types of opportunities back! It’d be nice to say I own some puts these day, but ……..

      1. 2WR
        Similar story. I had S&P index puts that expired that Friday. (Also not a maven.) Made a little bit, but nothing like what it would have been if the expiration had been a bit later. Don’t remember the exact $ missed out, but as I recall, it would have been about a year of college a few years after.

  9. Looks like the flood gates might be opening as in Mar 2020.
    Now well below the 200 SMA, next support ~3250

    1. The wealth destruction that Powell is seeking to cool off inflation is working extremely well since January 2022. Fortunately, Powell waited to destroy wealth until after the end of year so that tax proceeds to the federal and state government would be at historic highs. Since losses in a calendar year are limited to be very little above any gains, this year those who paid lots of taxes last year will have little to write off their tax losses this year. Great Timing Powell!. Since China is in lockdowns, oil demand is lower but prices keep on going up destroying the consumers of America’s pockets which represent 70 percent of the American economy. I guess the plan is to keep those planning on retiring in the workforce until death so as to keep the social security system solvent and the numbers of those seeking work up lowering labor costs.

    1. IIRC, management had a large stake in QRTEP. I need to look for that, the way this is trading you would think bankruptcy risk is rapidly increasing.

  10. SPX – Now that we broke below 3800, it’s becoming more probable that 3500 is in play. That would be a 50% retracement from ‘20 bottom. We are extremely oversold so a bounce is coming. Great bargains in the preferred space though. ATB

    1. At 3,750 on the SPX – the estimated PE ratio is 16.5 based upon estimated earnings of $230. That’s fairly normal PE for the SPX with a 3.5% 10-year yield. The market has adjusted for a “normalized” interest rate on the 10-year between 3%-4%.

      $230 estimated earnings on the SPX. Actual earnings last year for the SPX was $208.49. That means estimated earnings growth for this year is at 10.3%.

      Too high? Too low? I for one have my doubts that the 10-year Tbill will stabilize at 3.5% and SPX earnings can grow 10.3%. Still holding lots, lots of cash but slowly dipping my toe into the water.

      1. Another way to look at this is last year’s earnings. 3,750/208.49 = 18 PE on the SPX.

        The 3,500 you mentioned would be a PE of 16.8 assuming no earnings growth at all for 2022.

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