Don’t Chase Issues–There is Some Dumping Going On

I have tried to do some buying on investment grade issues this week and until today had little luck. But now we are seeing some issues moving larger volumes which is giving one a chance.

I had a GTC order in on the 5.25% Ellsworth Growth and Income CEF preferred for a few days and it has executed on a ‘dump’. My price was $25.50. Just a small couple hundred as I already had a position and a better opportunity may arise–so reset a lower GTC order. This is a Moodys A1 issue–and in spite of the name is a Gabelli Fund.

I also bought a small position in Prospect Capital baby bond (PBB) 6.25% as it tumbled all the way to $25.02. This investment grade issue is callable NOW and matures in 2024.

For the really brave the lodging REIT preferreds are being pummeled and I see issues of quality companies like Pebblebrook (PEB) 6.375% perpetual (PEB-E) selling in the $23.xx area. And of course there are many more.

So buy small and keep a little money at the ready–who knows what tomorrow brings!!

22 thoughts on “Don’t Chase Issues–There is Some Dumping Going On”

  1. Comments on CBS and SA
    Not fake news
    SBUX opening back up stores in China, sales still down and mostly on line orders. But now sales being affected in other parts of the world. Expects 50% decline in first half of year in China.
    Current price is 76.00 down 3.50 approx.
    People will not give up their coffee. If I was to guess, this is a trend world wide then SBUX should be a buy around 45- to 48 ? Maybe also a dividend cut?

  2. Lot of good comments here, Scott’s point about what is really the data verses the news as its constantly changing. Grid’s advice to step away from the computer and do something healthy instead.
    I have read a couple things about China. One, 1/4 of businesses have started back up. Desperation, forced labor? or possibility of a recovery or just fake news. Two, the stoppage of business has led to financial instability.
    Another article was a interview of a 25yr old male brit who was a school teacher in Whuhan, Do the time line. He said he is slowly recovering and its been 59 days since he first felt ill. This means it was already spreading as far back as Dec. in China.
    The Chinese were aggressive in dealing with the outbreak after realizing it was a problem. If we extrapolate from this, we are in the second inning and this Flu is going to get worse before it gets better. If what is true in China, then we may expect to see the peak in May with recovery by end of June and July. By this time the economic damage will be done.
    What can we expect ? Cash flow will be reduced at companies along with their ability to pay the bills. Expect suspension of some dividend payments by companies trying to preserve capitol. Therefore look to see if any of your preferred are cumulative. Second, which businesses will be least affected ? few will be untouched. Travel, hotel and tourist will be worse. I have no idea where the rest will fall. Manufacturing, Property rental, Financial, shipping etc. Look who has cash reserves and least debt.
    Some things people will not give up, although they may not be able to pay for it. Phone, computer, Electricity, water, Nexflix ?
    I am not trying to paint a doomsday scenario, just trying to be logical. Look to were it started, they will recover first. See how long and what businesses will recover. India and China are the biggest suppliers of drugs and chemicals.
    Obviously shipping will recover, but with reduced demand will there be too much capacity and not enough goods shipped?
    The rest of the world will still need the drugs they provide, so who will benefit with the rest of the world still sick and recovering ?
    The last crusade ” choose wisely, the true Grail will bring you life the false Grail will take it from you”

    1. We are offered volatility every day, may as well nibble a sample.
      I plan to rebuy the SSO (S&P 2x) at S&P 288 level for a rebound of a few hours. That is if i get a 30 minute break between clients at work.
      No handshakes, just fist pumps and plenty of hand washing.
      EPR is interesting for a leg in at these levels. Anyone follow this?
      So, Jack be nimble, Jack be quick, Jack jump over the Candlestick (especially if it’s a Doji)

      Good luck all

  3. Markets getting gutted here this morning – patiently looking for stuff I wish I had but was too highly priced. Besides the preferreds, I am looking for divvy paying tech and blue chips – picked up some AVGO pre-market at $264, MMM at $148. More in the cue.

  4. Another reason not to chase…..

    According to the Johns Hopkins Corona virus reporting site the doubling time for total new confirmed cases outside of China is a little under four days. If this trend continues, and it appears to be accelerating, we’ll go over the million mark before the end of the month. Of course the actual number of new cases has to be much greater than confirmed cases. Two thoughts come to mind. Compound interest and dry powder. Someone check my math please.

    1. On the other hand, the HHS said tonight that the mortality rate is probably far less than what is being bandied about in the news because for every case reported and tested there are several that are never confirmed or reported.

      That being the case, instead of the mortality rate being 3% it is likely under 1% and possibly well under it. The normal flu has a mortality rate of 0.1-0.15% so while we are looking at something worse, it is not an order of magnitude different.

      We will see if that opinion holds up. It is hard to imagine the Chinese shutting down their entire economy over something which is only 2-3 times as lethal as the normal flu.

      1. Exactly, when you consider that 60% of the US population elects not to have a flu shot, then why the panic over a respiratory illness with a similar order of magnitude effect? I think this is more like Y2K. Hysteria over very little.

        1. Companies are not meeting earnings. Goldman continues to say (again this morning) that earnings growth is now forecasted at 0%. Of course, the market needs to reprice for 0% earnings growth. That’s not panic, that’s just now the markets work.

          Shoukd the growth rate by 0%?

          We are not in a position to test for the virus and NOBODY knows the order of magnitude of this versus the standard flu. Absence of data leads to all sorts of claims that the order of magnitude is the same or it’s much much worse. Without testing, you just don’t know.

      2. This is not what the current data shows. The Korean government has done their job unlike other countries. They aggressively test for it and therefore may have the best data.

        Their data as of last night was 5x to 6X higher (about 0.6% death rate).

        Certainly not as bad as 3% but clearly not the same order of magnitude unless you consider 5x to 6X the same.

        1. Not to be argumentative, but that is literally the same order of magnitude in mathematical terms. You have to hit ten times to be a different order of magnitude. And the South Koreans will have no idea how many have it because again, mild cases never go to the doctor. So if they have 0.6% then that is 4x worse than a bad normal flu. But if they are only finding half the cases then it may be as little as twice as bad as the flu. In either case, they are backing up the pt our HHS guy made. They are all in the same ballpark.

          So again, that would not be all that worrisome, or worth shutting down entire economies (which will have an early mortality rate of its own). Which is why I find the Chinese response to be troubling as an indicator our figures might be off. Who knows?

          1. .1 to .6 is 6x. I was wrong about .15 compared to .6 that is 4x. The range is 4X to 6X depending on whether you use the lower number or higher number. If you consider at least 10x to be an order of magnitude change, then you are welcome to that view.

            Discounting the 4x to 6x because not everybody get’s tested, is an interesting method. For that to be valid, you have to believe that everybody who has flu is being tested for the normal flu and not everybody is tested for coronavirus.

            If you want to believe that the coronavirus is just like the normal flu. please feel free to continue to do so. No sense at all arguing at it.

            The reality is the market does not currently believe this. It’s impacting supply chains, lowering earnings, and causing lots of market disruption. Could the market be wrong? Once we get the data, we will know. Until we get better data, we will not.

            The numbers will be what the numbers will be.

  5. I also bought Ellsworth preferred today. Now I have 4 Gabelli’s for my sock drawer, though I’ve had some success trading GAB-G.

    Wouldn’t touch a hotel stock until Corona is waning.

    Continued selling off REIT preferreds on the rally but couldn’t resist some buying on the aftrernoon swoon.

    1. Martin, you didnt get any competition out me today. It was nice and very windy and I had to focus hard to shoot 78 after logging a horrible 43 on the front 9. The phone stayed in the storage compartment. Just got my yahoo notification that my portfolio was up 0.02% today, so evidently I sidestepped any carnage today, lol.

    2. I saw UMH-D had gone under $24, so took a half-position at 23.85 today, I hope that doesn’t turn out to be dumb. With interest rates down, and possibly down even more soon, it’s hard to pass up a good 5+% issue below par. These days, I’m more interested in safety than a hefty yield.

      1. It’s all relative, but I would hesitate to call UMH-D good or safe.

        It’s unrated, so presumably junk grade

        1. Jacob, UMH-D is an issue from a debt-laden heap of a company that would be deep in the dog house if rated. Wouldn’t consider UMH-D more than a flip at this point and even that proved challenging for some friends here. Some companies just don’t want to pay the postage and handling required for a rating but still appear hold-worthy. Thinking along the lines of the pfds of AGM, AX, INBK, CHSCP and UBP. But I’ll confess to very much valuing the rating agancy’s stamp of approval when it’s available.

      2. Dave- I have spent time looking a UMH and don’t think it is as bad as others feel and have had a full position in them for a while. What’s strange to me is the amount of volume the issue trades every day considering its size .

  6. Prospect having an IG rating just doesn’t seem right to me… even if it is borderline.

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