Category: General Commentary

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.

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.

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.

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.

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.