Don’t Look Now But Markets are Irrationally Exuburant

Seeing the equity markets up this much today you have to know this is a bear market rally.

We have little knowledge (and the knowledge we have is suspect) on the extent of economic damage to the economy–but I guess it is ‘party on’ for the computers.

I just recapped the mREIT preferreds last night and today they are rocketing with some up 100%–this is the time you wish you had more than the 200 shares I bought. I won’t chase too hard here–they are bound to set back after today–and more as reality sets in.

I did nibble the Invesco Term Trust (IHIT) today as I bought some at $7.60 yesterday but today it was lower so nibbled a bit more.

I also nibbled more of the Gabelli Multimedia Trust 5.125% (GGT-E) perpetual.

So with a couple little nibbles I am done for the day I think. Better opportunities are ahead.

41 thoughts on “Don’t Look Now But Markets are Irrationally Exuburant”

  1. Maybe just rearranging the deck chairs on the Titanic. Not all markets are exuberant. Don’t look now but short term Treasuries went negative.

  2. Tim- Thanks for you good work here. Sold 99% of my preferreds today. Bought some at lows last week but most over last year…overall willing to take a 15% hit to have some dry power. Sold stuff I love because can’t believe the prices today. If the world is great now then I’m happy to give up a few dollars but if not the market will prob be tested many times again this year. When would you think the market would surge on a 3.3 million unemployement number??

  3. Thank you chuck P, charlie, rick b and gridbird for patiently explaining why WFC-C and BAC-L ar pretty much not callable. Yes, should have first read the fine print / prospectus…

    Also being TBTF and bigger of the US tbtf banks, very unlikely to be called indeed. Will look for for these and similar to be on sale like some of you managed snag to buy the past week with the crazy low prices

    1. Had a little fat finger trade on BAC-L today. It traded up 8% and down 5%, just today. Crazy stuff. Luckily was able to unwind my trade with funding for a few MCD happy meals. . .

    2. Good morning to you “mSquare”; Its “WFC+L” just to give you the correct symbol. Looks like today some of the bargains are returning again but not as low as they were say about 5 or 7 days ago. But there are still a few quality companies out there with extremely attractive pricepoints and really good coupons with good call protection. Still wish Tim had a way to PM certain members rather than clogging up his site with back and forth conversations on maybe one particular issue. I have been “Loading Up” on the MEGA BANKS preferreds with great coupons and great call protection. Mike Mayo the bank analyist at Wells Fargo says all the Mega Banks are very well capitalized and can handle this storm. OK Tim I won’t say “S—-storm”. LOL Hope this finds everybody doing well and SAFE & HEALTHY.

  4. Just an observation, I mostly invest in BBB+ and above corporate bonds, baby bonds and preferred stock. In the last several days, while the baby bonds and preferred stocks have been on fire, the corporate bond market seems to have practically no activity, i.e. virtually no bids. Not sure if this means something. I heard a few days ago that the Fed would take investment grade securities as collateral. Wondering if this might be coming into play here, or there is something else at play? I don’t need to raise cash, so I am content collecting interest, but if there were more bidders, I might shift things around.

    1. The markets are not a ‘bulletin board’ matching up your potential desire to buy…or sell. A basic computer could do this very easily, BUT like the Fed, exchanges are private/for profit , bond trades are mostly shadows, private and thus …let’s just say…human nature intervenes. They will NOT be ‘disrupted’ by transparent automation like many ‘industries’. Myths abound.
      You asked , “does this mean anything…?” It is what it is…until it is changed. Good luck on that.
      I propose an open, 24 hour, global, bid,ask blind computer matching system funded by transaction fees. The universal numbering system already exists. Oh yeah, the numbers are assigned by a private, subscription services also. Go ahead and try to get info thru your “BROKER”. or open access. You think you should be free to see the open bid/ask.?..me too.
      Quiz: Something is ______________in the State of _____________.

    2. It’s may be a quarter end’ rebalancing’ effe, since (I assume) the equities fell more than bonds.

  5. What a crazy day. MFA-C up 144%. Now I’m only down 60% so if does it three more times I’ll have a profit. Ha. A lesson in how quickly money can be lost but how slowly it’s gained back.

    1. I’m with you DANZEB. My lesson is to likely never touch mREIT’s again. Time will tell, but at this point, I just want to try and get the bulk of my $ out of this name. My own fault. I DIDN’T do my own due diligence on this one and just went off of what another poster on the forum here recommended. Funny how he has gone MIA after unloading a multitude of horribly bad recommendations that virus or no virus, were just horrible. But, the mirror shows me who is responsible for nibbling on that pump and dump. Be well….

    1. The trading volume on these funds is typically very low (avg < 2k shares per day). As a result the last trade price can be quite a bit different than the price you can either sell or buy it for (note the difference in the bid/ask price). So always always use a limit order and not a market order.

  6. Tim- It’s not totally irrational given $2 trillion stimulus package will be passed. However the economic macro picture looks rather grim and after St. Louis Fed’s Bullard pointing out data for a 30% unemployment rate would indicate much more pain is to come.

    1. Hster–that $2 billion is going to be sucked up instantly and they will be back again for more in 90 days.

      1. Now awake at this time of day and been thinking about this for most of yesterday. So much money sloshing around and the people are excited about this rescue package. I fear Tim is correct.
        Between the 24 hour news / pundits ? a long time dysfunctional government and myriad other issues of lost jobs, the COVID 19, easy credit and extreme belief’s I wonder how long after this rescue package passes before the hangover sets in as it takes time to setup distribution of such a massive give away and how much is going to trickle down to the working person?.
        I think in these markets with such extreme swings, that stocks like IHIT are just day trades for now. As Tim has indicated he is averaging in to build a position and dollar cost averaging between his buys at highs and lows. People who read this forum and jump all in with a full position in these crazy markets need to understand the risks they are taking.

        1. Classic bear market rally. I decreased equity position by 15% yesterday. Selling more today if I’m not too late.

    1. It is @ >7% premium from nav…..(when the avg. prem/discount is about 0%).

      But with the last days price dislocation, I don’t know anymore what is a “good” price and what is the “right” price to buy.

    2. Danny–mostly investment grade holdings–but commercial, so be careful–I bought more-in limited amounts.

      1. It’s a bit of a leap of faith to trust the rating on the stuff that IHIT has in its portfolio. One that I am not willing to make.

        1. Jacob–it is always a leap of faith on ratings–I don’t trust any of them, but at a 20% discount I feel a bit better.

          1. I don’t trust any ratings either, but at least with corporate debt I can look at the rating and then go do my own due diligence.

            Hard to do due diligence on the mortgage backed securities that are in IHITs portfolio.

      2. Thank you Tim and everyone, your advice is greatly appreciated as always.
        This is a site that help everyone understand how to make money, save money and also not to lose money..wonderful site/job !!!
        Thank you all!

  7. I was looking at saf today. one of the few down.
    there common sar is up 26 percent today so seems a bit odd
    thoughts?

    1. Indeed, both IHIT and IHTA down around 10% so far today. Nabbed some on the way down — hoping that wasn’t stupid. But with less than 3 and 4 years until they end, the upside would seem significant, along with a nice dividend now.

  8. This is a “GREAT POST by TIM” for sure. I’ve been thinking this all morning. Let me give you a really perfect example of this craziness. Just a few days ago I bought 100 shares of “WFC+L” which is a Wells Fargo Preferred with a very rare coupon of 7.5%. Its a par value of $1,000 and will not be called in our lifetime. So I bought my 100 shares at $1,054 which I thought was a really good value. As I type this its trading at around $1,300+. That shows you how crazy the landscape is. If you guys haven’t made a boatload of $$$$ over the last 2 days then you are really doing something wrong. The other thing I would like to say is this: Just a few short days ago there were “Bargains Galore” out there from all kinds of High Quality Companies but not so much anymore. The true bargains have disappeared very quickly. Just glad I loaded up a few days back.

    1. Why do you say WFC+L will never be called?

      Is there something different than most other preferreds in this one? In my opinion the fact that it is $1,000 NAV v/s the typical $25 should not make much different.

      1. WFC-L, like its $1000 FV BofA counterpart BAC-L, is not redeemable/callable, but it is convertible into common shares if those reach a certain price level.

        I own BAC-L. The conversion price for BAC common is $50, whereas the current price is around $22 and the highest it has reached since 2009 is around $35. Thus, it is very likely BAC-L will never be converted or called. Truly perpetual and with a 7.25% coupon.

      2. Hello mSquare; Go over to Quantumonline.com and read the entire write up on the issue of “WFC+L”. After reading thru it you will understand as to why it will NEVER be called in our lifetime. Hope this finds you doing well.

        1. This from Q: WFC-L is uncallable. Instead, it is convertible into common. If Wells’ common closed above 130 percent of $156.71 (that’s $203.72) for 20 out of 30 consecutive trading days, the company could convert -L into 6.2814 shares of WFC, which at that price would be worth $1,279.

      3. It can be forced converted but Wells Fargo common stock has to be way over $150 (too lazy to do the exact math). That is why he is referencing in our lifetime.

  9. Just look at the charts for what happened on the last 2 Thursdays/Fridays. Down and down. Participants are going to sell the hell out of this thing going into tomorrow afternoon. History often repeats itself as we know. Until then, party on as you were! But it is good to see much less of the violent swinging – except with the futures.

      1. Yep Max, just look at yesterday. 330pm ticks on the clock and 1/2 the DOW gain is gone in minutes. Happens so often in the 3pm hour EST. I’ll be looking for it to happen again today.

  10. Have any of you ever looked at Canadian prefs. ? – Some ok IG names yielding 8-9 pct. now. Some trading at huge discounts as they have 5yr resets and rates have just gone down and down. That will give you some protection if/when rates rise. In terms of FX, a USD based investor could probably live with USD/CAD @1,4ish…

    1. Peter,
      There is a whole section of the board here dedicated to CAN issues.

      https://innovativeincomeinvestor.com/canadian-securities-discussion/

      I’m not a fan at all. Almost every one I’ve gotten into has been a money wasting adventure, UNLESS, you’re buying the dividends only. In that case, many work great as self-manufactured annuities. You pay them a lot up front and get a dribble in the back. Of course, results vary.

      1. Agree. Looking at the landscape, it’s been a bloodbath – but with 5yrs @ 0,5 pct. we are closer to the bottom (of course in Denmark we are at -0,5 pct) – but don’t believe you will go there. At some point this crazy monetary/fiscal policy will force rates up, and many of the perps will be in danger of falling of a cliff. The resets will have protection in that scenario, and for some you can lock in 8-9 pct. for the next 4 years….. Anyway just my perspective 🙂 – and thanks for the link. Was not aware.

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