Bad news is good news, good news is great news–even no news is good news. So if you run an airline and your load factor goes from down 90% to down just 85% it is great news–I guess. The real question is where will it be next fall? With the FED pumping at the rate of $50 to $100 billion a week there is no use trying to guess where crazy markets will top out.
I have been chasing the new Pinnacle Financial 6.75% preferred issue all morning–I thought it would trade strong, but not quite this strong. I thought I would be able to get a decent ‘flip’ (short term holding to be sold for 1-2% gain). I have raised my bid 3 times–now I am done–I get it at $25.35 or not at all–oops it just executed so I have a 1/2 position and would be happy to sell around $25.75–or if it drops go ahead and add the other 1/2 position.
I am maintaining the 70% invested position that I have had and which has had great capital gains. Mostly utility and CEF preferreds and baby bonds–they are keepers.
I did get out of the UMH Properties 6.875% UMH_B shares–took a few days to get the price I wanted to ensure my 2% dividend capture—I wrote last week about this one (and others).
I forgot to mention I had taken a 1/2 position in the New York Mortgage Trust 7.875% perpetual preferred (NYMTO) last week on 5/22–at $18.38. I had written on an upbeat report out of NYMT the day before. The dividend is suspended on these cumulative shares right now, but I suspect they will reinstate soon. I have now sold my position at $19.60.
I wish I would have jumped on the new Stifel 6.125% perpetual—a $2/share gain in 8 days would have been possible-crazy–
I suspect I will be doing a lot of flipping and dividend captures all summer long–not likely to see great buying opportunities any time soon–party on!!
Speaking of the Fed, retailers are the next ones to be asking for help.
https://www.washingtonpost.com/business/2020/05/31/fed-treasury-retailers-coronavirus-economy/
Very informative article. Everyone should read this. Thanks for posting it.
WELL THAT WAS A HAPPY SURPRISE- Was checking new distributions this morning and found recently added Capital one preferred COFprJ paid out 40 cents/share where I was expecting 30 cents. As this was their first distribution, I’m assuming it was due to an oversized (>3 month) pay period. I don’t expect it will happen again but it sure was a nice thing to see.
Citizens Financial Group Announces Pricing of $400 Million Preferred Stock Offering
BY Business Wire
— 4:36 PM ET 05/28/2020
PROVIDENCE, R.I.–(BUSINESS WIRE)– Citizens Financial Group, Inc. (CFG) today announced the pricing of an offering of 400,000 shares of its 5.650% fixed-rate reset non-cumulative perpetual Series F Preferred Stock, liquidation preference $1,000 per share at an aggregate offering price of $400 million.
Ray; I own “CFG+D” which is their 6.35% preferred which is not callable until 4/6/24. If you watch it closely you can pick it up at a pretty good price usually. Better coupon than their new 5.65%.
Yes bought at $25.10 a few days back. I think this new issue may get a listing below 25
Hi Tim, MartinG, GridBird what are your thoughts on holding CEFs like PCI, PDI, PTY during these potentially troubling times. For my personal situation, I can ride through the down time if the dividends are maintained and there is a reasonable chance for them to recover. Appreciate your thoughts.
Raj, I don’t see any of the experts commenting so I’ll give you my amateur opinion. I own a little bit of PCI as well as FFC but most of my preferred holdings are in individual issues not funds. Timing is always important but especially in funds. The leverage many of them employ invites exaggerated pricing swings. PIMCO funds are also subject to surprising premium charges which can evaporate quickly when the market stumbles. My personal cutoff on premium is 5% and even that is pretty high. The current premium on PTY is 27% which I consider suicidal for an investor. I’m underwater on my PCI shares as I bought at minimal premium but just before the Wuhan flu debacle. But at least I can collect 11% while I see if I can climb back to even on my PCI purchase. I use cefconnect.com to study closed end funds. Bring up some of those PIMCO funds with their high premium and watch what happens to them when the market sneezes. Hope this helps.
Is it just me or are others finding CEFConnect to be less and less reliable or up to date on their data? For example, looking at PCF, they say the fund sponsor is Putnam and that’s not been the case since July, 2018. They also are showing leverage figures on PCF dated 8/31/2014 and I don’t think PCF uses any leverage right now… I could be wrong.
To add just a bit to JV’s comment.
PDI and PCI both hold fairly large amounts of non agency MBSes which is what has made them profitable in the past. Now the issue is without any government cover for non agency paper, what rates of default you will see. The devil is always in the detail and you can not tell without looking closely into them. While pimco may be the chicken salad of fund managers, they often fail to release a lot of core data or make it very hard to find so you need to be quite careful. Blackrock often does a paper job in this department.
I have owned PCI for a quite a while but sold in March as there seemed to be too much confusion for me. But this is a personal thing. Good luck SC
Raj, I don’t normally trade bonds or funds so I don’t have the most informed opinion. Funds are best for people who don’t have the time or interest to trade individual issues (i.e. most people) but I’m on the computer trading at last half the week.
I’d rule out the first 2 because of ridiculously high fees. If i had to get one it would be the Pimco. They are a good bond company, I’m just allergic to fees and I like to pick my own.
Bonds are at historically low rates and it looks like they’ll stay there but if they don’t this is a bad sector. I’ve also posted that I think leverage is overdone though these aren’t highly leveraged.
Raj, Sorry, I am not a player here and cant give you any informed ideas or opinions.
I hold significant amounts of both FLC (similiar to FFC), and JPS–sock drawer investments. FLC is currently at less than a +1.0% premium and JPS is selling at a discount. FLC just raised their distribution. But, JPS recently reduced their distribution. I agree with Jerseyvinney, I would not buy at a premium greater than 2-3%. But both hold high quality preferreds and have a long history of solid performance. You can track their premium/discount to nav on CEFConnect.com
Thanks so much all for responding to my question above. I accumulated PCI, PDI and PTY over time when PCI/PDI were at a discount and PTY at a very low premium. The leverage and opacity of these funds scares me sometimes but over time they have held up well. Listening to you all, I will lighten up a bit and add individual issues as you experienced folks kindly post on this site. Thanks a ton again for your kind responses and wish you the best of investing.
I think we need to look more outside our bubble. What is happening in the rest of the world ? I know others here read different sources for information.
Here is a post I was just reading.
https://heisenbergreport.com/2020/05/29/from-europe-to-japan-to-south-korea-economic-gloom-is-pervasive/
Its looking more and more like dropping helicopter money isn’t the solution.
The link only shows part of the first paragraph. It asks for a login to see the article.
I think the discussion comes up occasionally, but for a refresher, where you placing your cash while awaiting better opportunities? Getting .01% at TDA is a problem I need to address. I may search the lists for low volatility preferreds in the 4-5% range.
The 4-5% preferreds also fell in the March crash but not as much as everything else. mostly in the 5-20% range.
I like preferreds of the funds owned by Gabelli for stability. GNT-A GGN-B, GGZ-A, GAB-G,H,K.. Some floating rate funds from GS and BML have a 4% floor and trading around 21 they bounce around more. GS-c GS-D BML-L. Some people like IPLDP SLMNP and WRB-B,E though these were more volatile in March.
These are great, thank you, looking into them. Quick question: All the bank issues seem to be non-cumulative. Anyone have experience with the payments actually being halted? Is that just part of the risk I need to get used to?
Seeing the GS ones made me laugh as I also have a loan with them (via Marcus bank) , so they borrow at 4% and lend out to me at 6.72%. Makes sense!
Many thanks to all the folks that contribute here!
Great question. I wish I knew the answer. Sometimes it is just moving excess cash to “high-yield” (1.4%) savings account. I think Ally may have a deal where they automatically move brokerage cash to one of their savings accounts, so that’s an option, and it beats having to do it manually.
I’ve thought about the ultra-short bond funds, such as PULS or ICSH, but haven’t bitten that bullet yet. Maybe “parked in a stable IG preferred” is the best option.
If someone has a better answer, please let us know.
Thats a tough question. Hiding in cash appears to be a shorter term strategy. Putting the money in a perpetual preferred to as an investment vehicle for that purpose seems to be a wrong strategy. One has to get the correct entry point, and exit point and that could be hindered by forces beyond ones control if they wanted quick access. I am in all sorts of illiquid issues with very little volatility..Bought 100 more IPWLK at $102.75 with divi kicking out in 2 weeks. This issue has largely stayed above $100 the past 8 years except for around 2013 taper tantrum time where is dropped into mid $90s. But I personally would never buy issues even like this with relative stability to substitute as a cash parking place.
It’s a good strategy in a stable market. Sometimes you have to sell at a small loss and sometimes you’ll get a small gain, and on average you net higher dividends. Using limit orders wisely avoids the entry point problem unless you’re in a hurry.
The problem today is we’re not in a stable market so it’s a higher risk strategy.
To just park some money fir an indefinite time I’m holding some cash in Dominion Energy’s reliability notes, which was discussed on this site a while back. Over 50k is getting 2%, not great but it’s safe (although not FDIC insured) and your money is liquid, which suits my needs and it’s better than any CD or savings account i’ve found. One warning: Dominion does not have its act together, gave me the wrong answer to crucial questions when setting up the account, but once it’s set up it’s been very smooth.
I decided to use NTRSO to hold “cash” since I had too much money in MINT. The yield is much better and the liquidity is ok. NTRS was the only US bank which didn’t cut its dividend in the GFC and the preferred is rated BBB+.
I think short-term treasuries are the best place to park cash. Usually I keep my dry powder in VGSH & SHY (I don’t have much now, since I had big purchases in late March and early April).
Moving it to savings is a valid strategy.
For really short term cash, I still use a money market fund. Currently pay about .25%, but that is 25x what the broker pays.
I like knowing that if I put a dollar in, I will get a dollar out (plus interest). Putting cash in a “regular” fund or preferred has the risk of price movement (even the gabelli funds). it doesn’t take much of a drop to “eat up” any earnings.
I also like that money markets pay interest for whatever time period I hold them – a day, a week, a month, it doesn’t matter. With other funds or shares, you have to hold on the ex-div date or you get nothing (but you still take the price risk).
One other thing I like about MM funds (at least at schwab) is that they have one day settlement, so I can buy shares in something today, put in a sell order for funds from my money market account to pay for the purchase (today or tomorrow), and the MM will settle before my purchase does.
I would be careful about the perceived safety of MM funds. The feds changed the rules after the great recession. We have similar rules now to what the Brits or Europeans have. The Heisenberg over on SA talked about it when it happened. When Britex happened, there was a panic and to stop the run on MM funds the government allowed fund managers to freeze withdrawals for I think 90 days and if funds needed to be liquidated, “break the pound” and pay back less than 1 to 1.
The rules here were changed to something similar to that several yrs ago. Even if they promise to pay a $ for every $ put in you may have to wait to get your money.
Charles, You have posted several negative comments in this thread about Money Market funds – what do you propose as a low risk alternative to park cash?
US MM accounts are not completely risk free, but they are very low risk.
I couldn’t find the SA article you mentioned, but is seems to be talking about the british government/brexit, not the US, and about the pound, not the dollar.
The US rules for MM funds did change after the 2008 crisis to strengthen money market funds, like cutting the allowable dollar weighted average duration of MM fund investments to less than 60 days, increasing the share of investments that had to be highest grade, and requiring much higher liquidity. There were some more recent changes that try to head off “runs”, but they don’t seem to be to burdensome for retail investors.
The primary changes were triggered by the Reserve Fund ‘breaking the buck” during the 08 crisis. The Reserve Fund collapse was triggered because the fund held a very small part of its assets in Lehman Bros. paper (IIRC, something like 1%), so when Lehman failed, Reserve Fund investors panicked and took the fund down. Ultimately, holders of the Reserve Fund got back over 99 cents on the dollar when the fund was finally wound up. I had a very tiny amount in the fund when it failed (one interest payment), so I got to see the wind down “up close and personal” .
If you are worried about the safety of a MM fund’s underlying investments, you can choose a MM fund that only invests in US Gov. obligations.They pay slightly less than other MM funds, but the underlying investments are essentially zero risk.
Note that other than covered deposits in FDIC insured bank accounts, it appears that all of the other “parking” options that have been mentioned in this thread (CEF, preferreds, etc.) have much greater risks of not returning every dollar invested as compared to a MM fund.
I deal with TDA and put excess cash in PVSXX, Federated Institutional Prime Value Obligations Service Shares. This money mkt fund pays around 1.63% annually. Liquidity has not been a problem and the share price moves very little. I pay no commissions and TDA has never complained about moving money, even small amts into and out of the fund.
I can’t wait to take my money out of MINT, as I have a 1% paper loss which I consider substantial. Hope this helps.
Here is archived article from CNBC from 2yrs ago
https://www.cnbc.com/2018/09/12/why-money-market-funds-wont-ever-be-the-same.html
New rules allow 10 days freeze on MM funds a floating NAV or to prevent a panic run on the MM funds allow up to a 2% penalty to discourage withdrawals
I thought these no tranaction fee funds at TDA will actually charge you a $45 fee if you sell within 45 days of purchase (might be 30 days, not sure which).
I have never paid TDA any commission or fee on buying (b) or selling (s) PSVXX. Here are my trades since November, 2019: 11/21 b, 12/9 b, 1/10/20 b, 2/3 b, 2/5 s, 2/7 s, 2/19 b, 2/27 s, 3/4 s, 3/8 b, 5/11 b.
Also, please refer to “Fees and Gate Risk” in the Summary Prospectus for the fund to see the limited circumstances in which the fund may freeze your funds or impose either a 1 or 2% fee. Please do your own research.
Stifel preferreds have always traded well…a little thin but normally much strength. And there’s a lot going on with that pricing chart. I believe it came to market 5/13 and 5/14 was a tough day for pfds, just look at PFF. So you’d either own it at 25 or next days 24.48- 24 .60…..The A and B’s traded around 13.50 during those dog days. B’s are trading at a 5 ytc and A’s much lower ytc but about same dollar price….I think you own these for a 27 or 28 handle….
It is not so much what the economy is today, but what people think it will be this time next year which matters. There seems to be heavy sentiment that things will recover at a decent pace and there will not be another buying opportunity like we saw in March. That seems to be a reasonable position and it implies that people are going to overpay based on the numbers during a short term disruption to garner longer term gain.
On the other hand, there are people who say there is usually a second dip and we should wait until then to buy. That is reasonable too. But in neither case do the current economic numbers mean all that much. All that matters is when people think the recovery is coming. As long as nothing happens to derail that, like a bad second wave of the pandemic, or making it more profitable not to work than to work, then it is useless to look at current numbers when the economy is not expected to stay in that state.
So if the market seems delinked from the economic numbers it is because we are in a situation where it is reasonable for it to be so.
Oh — and of course, if you think there will be a global depression which will take years to climb out of then you probably shouldn’t be in the market at all. I am surprised there aren’t more people in this camp. I am not in it, but normally there is no great dearth of Boomer Doomers.
Scott. I agree IMHO how in the heck can you have a Global Pandemic and things go back to the way the were? I was on a flight yesterday middle seat not used , how does an airline make money this way? It has to raise prices or die. The Airports look like my house when I divorced my wife.
No I don’t think a Fed stimulus makes all things better at all, but worse.
Im stick ing to investment grade preferred and nothing more.
Just a reminder…tomorrow will be your last chance to ‘Sell in May and Go Away’.
I’ve been selling in May but I aint going away.
The more and more that I look at ordinary common stocks, the more I find a large number of companies whose stock prices are still less than the mid point for the 52 week trading range. The indexes are not representative of the thundering herd even excluding energy, REIT’s and financials.
BTW, your preferred list is missing two mandatory convertible preferreds: Sempra (SRE-PA, $ 100 stated amount, 6%) and Broadcom (AVGOP, $ 1000 stated amount, 8%). Right now, both are in the money.
Unless I am mistaken, I don’t think he includes the mandatory convertible ones. Tim doesn’t seem to like those, and they have too many moving parts for me too in most cases.
The mandatory are interesting in that they change in nature whether the underlying common is close to the lower conversion price. Until the common approaches the lower conversion price, the preferred is just a higher yielding common stock. Right now the Centerpoint mandatory sells at about $34 (50 stated) and it offers double the yield as the common. That’s a really inefficient market.
The headache occurs when the common ranges between the lower and higher conversion prices when the conversion value remains constant: bad risk reward.
Above the higher conversion price you have a normal in the money convert with some favorable risk reward because of the effective floor in conversation value.
Yes, CNP-B is one of the two convertibles that I own. I was hoping to get a pop from it at some point during this recovery.
But in general, I do not like having to keep track of the common price. I have too many issues (double entendre) in my portfolio to keep track of as it is!
George, I only have ever messed with one mandatory convertible. I watched too many blow ups. They are everywhere. Anybody who bought CNP-B at $50 is gonna get smoked at conversion. No real hope here with it being anchored to the dividend cutting CNP hold co. I told myself not to buy these unless I wanted the common just as bad…I violated that rule and bought CNP-B at $48..Captured the dividend then watched it sink to $44 and sold it. And thrilled now I did. Lesson learned on a few hundred shares. There is a reason why I stick in my lane. And this was an example of why, ha…
Last couple weeks have been fun just trading around inside the PCG preferreds. Its been getting harder as interest has picked up and random price swings are getting more narrow, so that party is about done it appears and mostly just going to have to squat and wait for the play out.
I played in both the Sempra and Broadcom. For a while the Sempra traded at a 5 percent discount to its conversion value. I was disappointed that my broker didn’t immediately understand how I could arbitrage the discount for a holding period of six months.
Hey George,
Mandatories are simply a way to play the common, exchanging capital gains for current income. Simple rule is that you NEVER buy the convert unless you are willing to buy the common.
If the CNP common stays here at $18.02 until conversion 9/1/21 you would receive about 3.33% from dividend income for your total return. The CNPpB trading today at $34.57 would trade down to $33.07, so you lose $1.50 in capital but get $3.50 in income, for a total return of 6.05%. About 2.7% better than the common.
Again, with mandatories you’re just exchanging capital appreciation for income. If you love the common, great. If not, pass.
Right. Here’s what I don’t understand: CNPB is a busted mandatory convert, selling at $34 and a yield of 10.3 while the common only yields 3.4. At this level the conversion value of the preferred moves directly with the common. Why would anyone buy the common? The preferred is senior in liquidation and senior in rights to a sizable amount of common dividends. The company may not offer an attractive risk reward but the preferred is far superior to the common if the company is attractive The market in this case is seriously inefficient? Much more inefficient than the reluctance to invest below investment grade ever made junk bonds.
I think it would be quite interesting to have a listing and/or a dedicated discussion page for the $1000/par tickers, AVGOP, BAC-L, WFC-L, and I have no idea how many others. I’ve been watching BAC-L & WFC-L, but the premium over par is hard to get over. I recall discussions about WFC-L being essentially uncallable, so maybe it doesn’t matter.
Yes, I’ve researched this in the past and posted on CDx3, but it’s been a few years and I forget the numbers. The conversion option only kicks in at a really high number. Reach out to WFC’s investors relations people and they can tell you if someone else on the board doesn’t. I sold it to get better returns elsewhere but I made a bundle on it, bought fairly near par.
It’s around $153/sh IIRC.
Well here’s my CRAZY story of the day along with sentiments from many of you. I have been wanting to buy the common of AAPL because after doing quite a bit of research reading of various reports I have concluded its worth owning for the long haul. Now back in late March you could have bought it all day long in the $225 to $230 range. Today its over $322 as I type this. Here’s the kicker, so a J. P. Morgan analyist comes out this morning and says things are looking good for AAPL in India. Well after doing a little research I found out that India too has been hit really hard by the VIRUS and they now have over 27.1% UNEMPLOYMENT which equates to over 122 million people out of work!!!!!! Thats according to 2 sources, the BBC and the CMIE (Centre for Monitoring the Indian Economy). So I got into an argument with a guy on S.A. and he was Pontificating how India has over 1.3 Billion people. My response was if you take out all the children and the 27% that are Unemployed just how many smartphones are they actually going to sell??? Like Tim said, “BAD NEWS IS REALLY GOOD NEWS”. We will all look back someday and wonder how the hell did all this sh— come to pass like this???
Chuck, there are pockets of the markets where total insanity is on display. We all know that financials has been one of the lagging sectors in this recovery and it may be a long wait before many financials recover their former heights. But check the discount/premium to NAV on some CEFs that specialize in financial stocks. For instance, BTO holds shares of a lot of the big money center banks (GS, JPM, WFC, C…) and as of yesterday’s closing price it was selling for a 7.67% premium. But what about shares of FGB which holds stock of many BDCs and sells for an insanely rich 26% premium? The owners of these shares are simply cruisin’ for a bruisin’, IMO.
Stocks have turned into trading sardines. Stocks used to be priced on the basis of an estimate of a future earnings stream with an extra helping of optimism. But now, wall street has given up the guise of any relevance for earnings or economics. The underlying fundamentals have become irrelevant and PE values are meaningless. 21 million in continuing unemployment is now considered good news, bankrupcies and collapsed earnings are ignored. Earnings up, stock moves up; earnings horrific, stock goes up anyway even if it initally drops a bit, just look forward to 2022 or 2023. Bottom line is that stocks are now similar to bitcoin, a bet that someone else is willing to pay more than I did today regardless of actual economic value of the company . Good for short term traders but not so much for long term investors.
be careful guys, don’t get too complacent. I still think there will be another leg down
Ptrader–I agree with your sentiment–reality is only slowly sinking in as airlines start to announce huge layoffs etc., but I am guessing it will September/October before markets hit the wall.
Boeing is announcing big layoffs too- even mgmt. Hope they can keep the plane sales & production going.
They re-started building 737 MAX again, which still seems to have issues and pilot re-trainings. What airline is dumb enough to buy those?
Tim, When the 600.00 fed add on to unemployment ends in July the market may drop then or not. If they extend it , then party on. But the longer it goes on the harder it will be to wean people off it and like addict on withdrawal things may crash. But then again, feds have never let things get bad in the economy in my lifetime leading up to Nov. in a election yr.
Likely another leg down but we don’t know when. I’ve got some short funds but not too much because of the old saying,”The market can stay insane longer than you can stay solvent.”
Martin, agree totally but believe the Keynes quote is “markets can remain irrational” rather than “insane.” Market is clearly more irrational than usual lately, God help us all if it actually goes insane.
Couldn’t agree more Ptrader. I am hunkering down at 35% cash. Not buying a thing at these prices, and having to fight urge to sell. Tempted to not look again until Sept….who am I kidding, I will look again tomorrow..thats half the problem! Any good suggestions for how NOT to look? Tim your site is just too compelling. But this whole scenario feels like a car, train and boat wreck just waiting to happen..