End of the Panic? Start of Fundamental Declines?

I thought maybe we saw the end of panic market declines–but yesterday proved I was wrong on that. So with a little market bounce today in the futures maybe we will begin to get a little footing while continuing a general market decline.

To me with dividends starting to be cut and earnings evaporating the equity market will see further erosion. The key here is ‘erosion’—erosion is a long term process–in this case 3-9 months. We can deal with ‘erosion’–not so well with ‘plunges’.

Once I think we are just eroding–instead of plunging I will buy a few high yield preferreds–i.e. VER-F and AMH issues and potentially an Annaly issue.

I know today I will not be buying or selling as I have to be out of the office for most of the day–but bargains will remain to be available for many weeks-if not months.

16 thoughts on “End of the Panic? Start of Fundamental Declines?”

    1. I was a little brave with MCX yesterday, nabbed a one-quarter position for $19.50. That’s enough for me.

    2. Despite MCC being a horrible BDC, the bonds at this point look extremely well covered — ironically perhaps best of all the BDCs. That’s because the company stopped paying dividends, pretty much stopped all deal making and is just harvesting cash. Balance sheet shows $432 million in assets, including $342 million loan portfolio (which is fair value after massive writedowns) and $82 million of cash. Debt is $204 million. The cash is being used to repay some notes, and just collecting. Net of cash, assets of $350 million cover net debt of $122 million. Even assuming further massive losses, there is close to 3x asset coverage. In the meantime interest and loan repayments add to the cash balance. The stock price is meaningless at this point, but there is an extremely remote scenario, even with corona, that the $350 million portfolio evaporates by 66%.

  1. Annaly issues are a bargain at the low end of their range. NLY-D went as low as 19.04, though I only got a 100 share partial fill at that price.

    1. The one I’ve been watching. Hope it breaks 20, but I’m having my doubts. A write up on NLY preferreds yesterday on SA so it’s likely this one will have a difficult going lower.

    1. T and VZ common stock held up relatively well with drops of 16% and 14%. I don’t think they will be effected much from the virus and oil problems. Their preferreds should be safe.

  2. I’m always pretty much fully invested so have very little dry powder. My main activity lately has been replacing good callable preferreds (WRBprB) with equal quality (WRBprF) going further out though at a slightly lower rate. My other project was replacing floating rate holdings (VRP) with a more traditional preferred fund (FFC). Next, I need to look at my large position in Fidelity floating rate (FFRHX) which is yielding in the 4s and IMO has poor prospects going forward. I’m looking forward to scouring the lists for BBB rated 5+% yielders to serve as replacements. I just can’t see any incentive to be in floating rate as I think any floating done will be down. Opinions?

  3. Start keeping an eye on those CEF preferreds. My spidey senses are telling me a couple might be very close to their 200% asset coverage window. I would guide anyone holding those positions to be familiar with what the process is like when the asset coverage limit gets hit.

    1. Grayhawk,
      So what happens if they breach 200%? I think they have to either sell more common or sell underlying assets? Correct?
      Jay

    2. If you have any color on that process, I’d love to hear it. I really only have OCCIP. They’re already down 22%. I wouldn’t own the CEF for any of the CLO equity funds, but the 200% rule should protect the preferred….
      Thanks in advance.

  4. Hello, remember the Hong Kong guy that warned about the virus thing is not something to underestimate a month ago…? I hope everyone stay safe and healthy. Actually, my home town Hong Kong manages to keep the virus cases to remain low despite its 7M population in one crowded city and its extreme proximity to mainland China (and that the government refused to close border to China). The secret is really the community has been extra cautious (at a level that had been laughed at by western countries), people are all wearing masks going outdoor, keeping distance, work from home, practicing strong personal hygiene… etc. Yes most infected are mild and mortality rate isn’t super high, but the KEY is really not to collapse the hospitals and medical system, as that will have ripple effect to other types of patiences as well (look at Italy…). Indeed, because of Hong Kong ‘s community awareness the seasonal Flu cases is also dropping to historic low!

    At this moment I just hope everyone to stay safe and healthy! Regards.

    1. Vinl,
      This is good advice. People in the US were getting mixed messages on the seriousness of this disease along the lines of it’s just a flu. Too bad that it took this long for top leadership in our governement to finally understand that this is no run of the mill flu. Unfortunately, many people have already died but hopefully the newly proposed measures will allow us to avoid a catastrophic outcome.

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