Good News Sends Stocks Higher

Finally after waiting for weeks we are seeing some good news–or at least ‘hopeful’ news.

States are beginning to slowly reopen some businesses–and this at least gives me more hope than the daily beat down of terrible stories. On the other hand it may not work out–maybe there will be an explosion of Covid 19 cases–but for today it is good. On top of that it will be sunny and 71 degrees in Minnesota today–always helping to raise spirits.

While the good news helps brighten the day, honestly there will be so much bad, sad and terrible news in a week, a month or a year that one doesn’t want to let their good spirits let them get carried away. On the other hand I think I will buy something today–actually I already bought a few more shares of the AMG 5.15% Convertible trust preferred (AATRL)–an investment grade issue with a current yield just under 7%. I have been drawn to this one over and over–I can’t help but strongly believe it will trade $10/share higher before the year is out.

Also I am looking for a taste of a mREIT preferred or lodging preferred–just a taste. And while I am at it maybe a taste of Associated Bank preferreds-with a current yield of up to 6.4% —I had originally thought Customers Bancorp preferreds (CUBI), but I am trying to stay away from the Fixed to Floating issues–with 3 month Libor at 1.18% today FTF issues are in a position to see their coupons fall once they hit the floating rate date (usually 5 years or so after issuance).

Likely I will add just a few percentages to the portfolio this week–we’ll see.

51 thoughts on “Good News Sends Stocks Higher”

  1. Tim,

    RE: Customers Banc 6 1/2% Fixed to Float… you previously mentioned…
    even if the 3mo Libor is 0, the security should pay 5.09% on 3-15-21
    Not sure why this is selling for $21 and change. It is non rated though..
    Is quality that poor or am I missing something?

  2. Tim,
    Just noticed that AATRL is finally trading in the 40s again. It is my second largest position with an average cost of $38.57. Thanks again for pointing it out in the sock drawer discussion last year and then again during this crash. Very nice longer term holding now.
    Hope you and your family are doing well.
    Stay safe
    Gary

    1. Gary–just got back to the office and see it up to 42.47–I am overweight so can’t be unhappy.

  3. Jim, Joel A posted down thread that the two BBs seemed attractive to him, I chimed in with my ownership experience, still holding some AIW, it’s under water but a small position and I am holding on to it. Take care.

  4. For a long time I have been reading the highly respected Hoisington’s Quarterly Report. Lacy Hunt and Van Hoisington.
    Years ago I was very skeptical of their projections, but not their process. Their views kept being confirmed over time. It gave me cold comfort to pursue and stay in IG prefs. as they are bond-like and IG BBs. Long rates would hit 1%?! At the end of the day they are the last man standing when it comes to risk, income, gains…and just being RIGHT!
    They are foreseeing no change to the trend for as long as one can look out.
    Here is a link to March 2020’s Report:
    https://hoisingtonmgt.com/pdf/HIM2020Q1NP.pdf
    I read the whole thing, then ask myself, “What did I just read, what exactly are they saying and what does this mean to me at my age?”
    Maybe better for morning coffee reading not bedtime.

    1. WOW!…heavy reading to say the least & way above my pay grade! Here is what I got out of it (particularly what is written on the last page)>>>REAL TROUBLE IN RIVER CITY to refer to an old phrase! Keys: It will be 5 to 7 years until we recover to 2019 levels & interest rates will remain near to or at zero for a long time. FWIW-I think they are correct. To quote what the last heirophant of Greece said to the emperor Julian (in Gore Vidal’s book of the same name) DARKNESS WILL FALL!

    2. To Joel A.; Thank You very much for sharing this report. I had not heard of these folks before but the piece is certainly quite interesting and in all honesty quite “scary”. When they are talking about total debt to GDP of 120% to 130% and then comparing public and private debt to the Lehman debt of 402% it all sounds rather ominous. I certainly am no economist but I certainly can read and atleast somewhat understand what they are implying. A simple translation would look like this: The future may have alot of bumps, rocks, and potholes down the road for us. And for that exact reason Iam no longer going to buy preferreds that would be classified as junky type of paper. The month of March gave us all a valuable lesson about that.

  5. Joel A – I was holding both a ways back, let the AIC go over the winter but still have a half position in AIW. Actually tried to add a bit before it went ex the other day but my limit order didn’t fill and I was not going to chase it. Redemption is May 2023, may take another shot at it down the road. Good luck with it.

      1. Jim, Joel A posted down thread that the two BBs seemed attractive to him, I chimed in with my ownership experience, still holding some AIW, it’s under water but a small position and I am holding on to it. Take care.

    1. AIW currently trades at ~7.5% yield with a maturity in three years..not sure the risk of owning mREIT debt is worth less than double digit returns in this market.

    1. Just bought a hundo Jim a minute ago at 101.75 myself. I was stalking that past couple weeks hoping a seller would crumble.But he was stubborn..Glad he was as I tried a couple weeks ago at $102.50 and got ignored as lead bid and gave up.

      1. Very pleased. We got 63 percent of today’s action. Looks like a good long term holding at an attractive price. I owe someone on this board for turning me on to it but I can’t remember who or when. So I’ll issue a broad based thanks.

        1. Jim, I have owned about every old illiquid preferred somewhere along the line, except the old Alabama Power issues for some unknown reason. Had owned and flip SO’s Mississippi Power, Gulf Power, and Georgia Power many times in the past though. But I bought 100 of the APRCP on a dump last month and was just loosely watching this one after I gave up a week ago or so ago. Came in from walk and poked in the ticker for first time today and saw the 101.75 so I bought.

          1. I hear that Gridbird. I’d say I have only dealt with 1/5 of that many. Smaller issues just don’t excite me. I will go hot and cold on them and sometimes just flush positions if I get the “hebbie gebbies.” I had that feeling on the mcreits (again) but made the mistake of putting back on some positions.

            I can’t fix down 90% but phwwwww most are half price to better. Something must be ok in the background or they’d have stayed down you know?

            As we can see many that hit 16-18 are back to 25++. Most that hit like 10 are back to 18-20…. Still good value out there if we can actually get people working again. Ford remains a concern to me…..

            1. If You Prefer, I agree, the ones that havent recovered are probably the best value. Its just those have never been largely in my comfort zone except when things were smooth sailing…Ala, the NSS or ALLY-A types. Im just mentally not suited. Im down to very few issues outside of ute preferreds. I like your “hebbie gebbie” comment. As I go by my emotional radar as much as numbers, and to be honest it keeps me out of trouble, and maximizes my returns more than any number crunching does.
              The way I have to make my juice is following buy-sell imbalances on issues, and keeping a large chunk of extreme illiquids in the fold to sell off when liquids crater as they never trade in tandem. I got too exposed being too greedy in liquids right before market cratered, so it mitigated my ability to maximize returns. One example that works every time and I mean every time I have used it is doubling and tripling up on SR-A when it falls noticeably below its normal 75 cent to $1 difference in pricing between it and DUK-A. I double check that SR the common is fine and then load up and it always climbs back into that lower parallel range with DUK-A. Oddly enough I havent owned DUK-A since the IPO flip, but I use it as my marker.

              1. i have owned DUK-A since your Reader Alerts of its IPO
                added on the last sell off

                it been solid

                Thanks

                1. Pickle its a solid issue and a good hold core issue no question. And since I use it as my marker for SR-A, I would have no problem owning it either. I just havent owned it again for no particular reason. For my trading purposes it doesn’t normally bounce as frequently as SR-A, so I cant get a trading feel for it. DUK-A is a great marker for SR-A, but the reverse doesnt work, or in a noticeable manner I can determine anyways.

          2. Grid, Is APRCP any different from SOJD from a credit perspective? SOJD has a 4.95% coupon and 5 years of call protection. It is trading at 24.50 so seems like a much better value. I may be missing something and would like to know what you think. Thanks

            1. Kapil, Keep in mind beforehand I am talking in minutia here. But the Alabama Power preferreds are actually superior in credit rating of the holding company subordinated debt of Southern. Alabama preferreds by Moodys is rated A3 while the Southern subordinated debt is Baa3 from last rating. Most get confused about this as they see it as the parent and safer. In reality to oversimplify, its more like a parent who is responsible for the teenage child. But the teenage child works 40 hours a week to put food on the table while the parent sits in a chair at home and does nothing. In other words the parent will starve to death if the kid who is bossed around by the parent doesnt go to work.
              Alabama Power has their own credit lines but there are some cross swaps if memory serves. So ultimately its really more what you prefer to own, not a good or bad choice. Allowing for QDI, APRDM nets better yield. Of course this is not meaningful if held in tax free. APRDM at 101.75 was more near its 52 week low. While SOJD is not. APRDM will be more stabile in pricing relative to SOJD which is tied into the liquid trading markets volatility.
              SOJD is more liquid and easier to buy and sell. So it really just boils down to what you value. I needed QDI, I love illiquid issues on sale as I like price relative stability that moves out of sync to market liquid issues. And its credit safety is significantly higher but in reality isnt a real major concern overall in my small brained opinion.

  6. Tim,

    Just finished perusing your Master Preferred list-again. Certainly appreciate the effort you put into all of this.

    Thanks,

    Ron

  7. CUBI-C is 5.3% + 3 month libor (1.2% approx), which should be a 6.5% in a few months. Not too bad of a yield, but not IG credit rating. Seems pretty good compared to other issues out there right now. I seem to remember before the doo doo hit the fan these were going to get called.

    1. gr–currently it is a 7% coupon so the question is will the share price move lower starting in June–or is the reduced coupon priced in?

  8. Isn’t AATRL redeemable at the issuer’s option for a value not in excess of .3824 times the price of AMG common stock (prospectus page 26)?

    1. Tim–no, that which you are referring to is in respect to a conversion rate adjustment–that it will not be higher than .3806 (it was originally .25). The company may now redeem at $50 plus accrued interest. I am not aware of any provision where they may be called for less.

  9. My stocks are unusually quiet today. No movement either way. Low volatility is supposed to be a good sign, at least that’s the rumor.

  10. STAG Industrial Properties reports 99 (ninety nine) percent collection in
    of rents for April 1, 2020. UMH reports 91 percent collection of rents due April 1 2020. When everyone thinks of getting into cash, remember the facts listed above showing that the majority of publicly held corporations are paying their STAG leases on time. Many residents in states where they have not been given eviction moratoriums are paying their space rents and home rents on time to UMH. STAG is a big industrial landlord. UMH is the third largest manufactured home publicly listed firm.

    Hong Kong still remains at four deaths a month later. Beauty shops and massage parlors are open in HK as people continue to wear masks. Karaoke parlors and bars are closed. Bangkok with over 8 million people has reported 19 (nineteen deaths) since January 2020.

    America will reopen. Bank trading desks will buy up the shares small investors sell. Investors who sell stocks will park their proceeds in banks at zero percent. Bank profits will increase even more as net interest margins surge on zero percent deposits. Jerome Powell will always take care of his former employers and friends in banking.

  11. Fixed-to-float can be a good deal if they’re priced accordingly. Lately they’ve been priced less efficiently. Possibly because near term risk doesn’t affect long term rate?

  12. Informative reading for a relatively quite day from Moodys…
    Most rating actions have been for speculative-grade companies. Apart from the fallen angels, there were 62 rating actions (26%) for companies that remained investment grade; and 171 actions (70%) for companies that remained speculative grade. This exemplifies the fact that the latter are generally more vulnerable to an economic shock, either because of a weaker business profile, weaker credit metrics, or both. By contrast, we affirmed the ratings and changed the outlook to negative for a number of global
    integrated oil and gas companies.

    https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1223293

    1. Hoping that the big oil capitulation this last week was the bottom. It sure looked and felt like it. The exporters NEED the hard capital, it’s a small part of our economy.

  13. Thanks Tim. I hope this financial suicide ends soon. I have been repositioning into IG. Preferreds. I don’t want to own anything that is risky. Above 2700 Spx I’m bullish, below there it opens things up to retesting the lows. Stay safe, ATB

    1. Tim, The water is nice here, come on in, basically been in it for vast majority of preferreds since 2013. In fact past couple weeks been spending time getting the original band back together. A nice chunk of my current preferred stash is now the same issues I had back in 2013.

      1. I hear ya Grid. What do you call your band? 🙂 I’m no longer chasing yield after this experience. I will also be using stops like I do in my Spx trading. Got to know when to hold’em and when to fold’em, lol. If we can hold 2700 Spx, my next target is 3100, let’s hope it holds as it will be good for our preferreds too. Yudaman Grid, ATB

      2. Grid, Gotta ask. What would have been the cumulative return, say compounded out, if you had ONLY reinvested the dividends and calls into IG new issues when they came up?
        I know it would be an estimate of a result. I am thinking you may have had a better result, less computer time and more time for golf?
        Hey I’m lazy!

        1. Joel, Dear Lord no…My yield at any time on all my preferreds as an average total is never more than 6.25%. So if you carry your thought out that would be my yearly turn in a vacuum with calls at par bought at par. But every year since 2013 I have returned minimum 10%. Last year was lower than many had as mine was only about 15% or so, because I didnt have the December collapse of 2018 being in illiquids and I was up over 10% that year too.
          Just as an example lets take AILLL because I have owned it off and on and mostly on since then…Just in the past month or so…I bought in at 26.20 range, sold off at $30 when a computer buying bot went crazy, bought them back next day at 27.50, sold off a week later at 28.50, and just rebought a dollar lower today….And I caught the quarterly dividend too. This goes on all the time on a yearly basis and compounds the returns. You cant generate double digit returns off buy and hold 6%.
          SR-A is a liquid example. I got in day one of IPO at $25.50. If I just sat there I would have about a years worth of divis and 50 cent cap gain…But I have generated easily $16 worth of returns of each share of this in past year.
          I got about 30 preferreds and I cant do this with all of them. But about 5-10 I beat em like a step child over and over. The key is knowing the trading range…And dont get greedy looking for the last penny profit or bottom cent buy price. If you do, you wont ever get the trades transacted.
          Besides, this isnt work its fun…Its sports betting with the odds stacked in my favor!
          That 10% yearly streak may end this year as I am only up 3%. Got caught with my pants down owning too many liquid issues and had to dig myself out of almost a negative 15% hole last month. If I had been in my usual 50-65% illiquid amount, I would be up 15%…Ugh..Never again…Im basically back in that range again.

          1. Cool to hear a long term perspective. Opportunism. Also Cool Hand Grid is living up to his reputation!

            1. Joel, I dont always mention this and should since we all only read selectively. There is a HUGE reason why I have been able to generate 10% returns off flipping preferreds, yearly. Its the law of large numbers or in my case the law of small numbers. Im not a wealthy person, I am cash flow strong with a great pension so I wont ever live off or spend my investment money.
              Many people here have very solid 7 figure retirement portfolios. Im just now slightly above mid 6 figures. There is no way in hell I could do this with say $3-$10 million dollars. The flipping would only create negligible alpha on that amount. But I did things backwards anyways..Retired 10 years ago early by borrowing, and then waited until retirement before I meaningfully saved for retirement. Suzy Orman and Dave Ramsey would not have been impressed with my method of reaching early retirement ha.

  14. I didn’t think it ever got to 71 F in Minnesota, is that a record?

    AGNC preferreds are the best bet in my opinion.

    1. Todd–it is close to a high for this year–we’ll be complaining about the heat and humidity in a couple months.

      1. Stay calm and paddle on. I purchased 200 shares GILD Monday 78.85 3% divided to balance some of the 7 to 10% I picked up last couple weeks

    2. I own AIW and AIC bond tranches. Short maturity, below par and covered by common (cut?) and prefs. All morts primarially govt backed. Good IRA fodder with the shorter maturity.

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