Here We Go Again–Watch and Nibble

Although the futures are up quite a bit this morning (700-800 Dow points) I am under no illusion that we have seen the end of the sell offs as announcements of capacity reductions from the major airlines serve to remind one that there will be fundamental pain ahead. Of course no one knows when Covid 19 will peak–I suspect it will be awhile–a month or two.

Yesterday was pretty painful for our personal accounts with losses of 1 – 1.5%—virtually all in the perpetual preferreds that we own.  The ‘sock drawer’ issues we own did well–barely moving.  As we mentioned we snagged 1 CEF preferred yesterday at $24.99-the Gabelli Multimedia Fund 5.125% (GGT-E)–the issue closed the day at $25.46.

Today we will continue to study and watch the CEF preferred–and some short dated maturities in the baby bonds, although I have concerned with some of the BDC baby bonds as they may incur sizable losses if we do fall into recessions later this year.  If I make so buys they will be small positions–no use burning up dry powder as there likely will be plenty of time to find and buy bargains.

As tiring as these markets are everyone needs to stay vigilant.  We will reach a point–maybe in a week or 2 where we tamp down the wild trading and instead only move higher or lower by 1% each day–I would be quite happy with moves this small.

53 thoughts on “Here We Go Again–Watch and Nibble”

  1. Newby question: I am looking at some Capital One issues that are rated S&P Rating: BB / Moody Rating: Baa3
    With Baa3 being the lowest investment grade and BB speculative grade, would Capital One be considered investment grade as long as one of the agency’s rate them that high ?

    1. Bill as Moodys has stated, any company with IG bonds rarely default on preferred obligations. One doesnt need or care about if this bank has any bonds because if they did they would certainly be IG being above preferred cap stack. So it largely becomes an issue if you like the company, and the yield and price point.

      1. Gridbird: Ok, thanks for the information. I am hoping to pick up some COF-J if it drops below $24 .

    2. Adding to what Grid says, Bill, yes, that has been the status quo. They are IG. Many times, you’ll see the preferred’s of firms like Cap One rated a degree or two below what the actual firm is rated by Moody’s or S&P. If the preferred or baby bond has at least one IG rating, then you are looking at an investment grade mothership. The best place to get the actual ratings on the mothership is usually on the Investor Relations page of that company. Capital One buries their stuff in their annual reports. Others make it far easier to find. You can also sign up for a free Moody’s account and keep tabs there. Please don’t rely exclusively on what is shown at QuantumOnline.

      1. Affinity4Investing : Free Moody’s account sounds good. Thank you and Gridbird for the excellent information. Nice to be in a group with such knowledgeable investors.

    3. Tim,
      Not sure where to post this but when you look at SNV-PE it shows the chart of NI/PB – wrong chart.

    4. Newby question: Banks generally go down with interest rates (make their money on the spread). With interest rates at historical levels and Trump wanting to keep them there, no sure how banks’ earnings will cope with lower for longer. So, concerned that dividends may not be well supported going forward. Does anyone else have similar concerns with the bank preferred stocks?

      1. Buddy, it’s the shape of the yield curve that matters, be the rates low or high. The more spread between short and long the better for the banks. It’s a very slim now so bad for banks.

        But also to consider is how much of a bank’s income is spread dependent. For some banks it’s most. For others it’s not much. Credit exposure is also an issue. Worst case: a bank that depends on marginal quality loans for its earnings, funds short term floating and lends long term fixed.

        Banks used to be all the same but not so much any more.

  2. Oxy cutting was the most foreseeable thing around. The acquisition last year of Anadarko was an act of utter stupidity.

    Buffet is going to end up owning the company. With his 10 billion of 8% preferred (plus warrants) he pretty much does.

  3. Don’t know if anyone is interested but the Oil Patch has bonds now on a Super Walmart type sale. I just scrolled thru “Hess Oil” on my Schwab inventory site and can’t believe the prices. They have them priced like they will be out of business soon.

    1. Chuck – there are some huge deals in the oil patch. Just need to be able to distinguish those that may fail from those that will be survivors.

      Takes a bit of a crystal ball and also a lot of homework. You don’t make money buying what’s loved by the herd.

    2. Chuck, thanks for the tip. The Hess bond maturing in 2024 is the only one I’d be tempted to own and it has a YTM of 4.5%. The others are too far from maturity for my palate, even with the higher yield.

  4. Just bought 200 of BC-C @ 25.00. Pays 6.375% dividend. Feel comfortable enough with it for my first “nibble” in two weeks.

  5. Stocks have been volatile but are currently up about 2.5%. This bounce is not supported by the action in credit at all (HY ETFs are up but they are not a good an indicator of credit spreads are acting). I have serious doubts that this will hold, not necessarily today but this is certainly not an all clear sign.

  6. I know this blog mostly discusses preferreds, but many Muni ETFs are selling at good discounts too.

    e.g MYJ a New Jersey Muni in low $15s yields 4.8+% tax free. If you live in NJ that could mean 7-9+% yield depending on your tax bracket…I already owned some and added even more as it trades at large discounts to NAV. I hope to pare the oversized position when it trades back to average discounts to NAV

    1. Discount is in the middle of the range, nothing special. Also performance pretty average vs peers. In the current environment I’d buy discounts at around 15%.

    2. mSquare – referring to a closed-end funds as an “ETF” is a capital offense!

      Muni CEF good. Muni ETF bad. The fee on a muni ETF gets you nothing but a lower yield. On a CEF, you have active management working for you and leverage. If it’s a well run fund both are accretive to returns and more than cover fees and costs.

      Cheers from Next Door.

      1. I hear your. MYJ is indeed a CEF and actively managed (at a decent sized fee).

        I do hold lower cost NJ funds such as from Vanguard but trade the CEFs – I load up on such CEFs when discount to yearly average for a CEF I like is in top-Q. and sell them when otherwise or need the $s for better opportunities.

        I added to MYJ as it was trading at -7% discount v/s -10.8 to -1.7% 52-week range.

        Adding to Muni with good yield when ^TNX seems headed for zero in the not too distant future seems even better.

        Not sure, how single-state Munis would do if we indeed go into a recession (it has been too long since and old data not comparable)

  7. Running into a strange and annoying situation with Schawb regarding CBKPP.
    Noticed on my trading platform that the symbol was replaced by a number and to make a long story short I was unable to come with a way to sell. Just talked to a rep and he informed me that all trading on this symbol has been restricted? Thoughts?

    I’ll let you all know how this proceeds.

    1. Out of curiosity, I placed on order for CBKPP on TDA just a minute ago and it accepted it. However, my orders for SLMNP are being rejected at TDA.

      1. Mark you are not alone. I have an open order that was partially filled in January. I went in today to revise the price and was met with the rejected message. Weird because it is still an open order but cannot make any changes. Just have to hope I get a bite at my limit before it expires.

    2. Jim – pretty sure you are SOL with CBKPP at Schwab. You may be able to trade it at IBKR as a bond using the CUSIP or at TDA.

  8. Nibbled on VERpF at $24.9x and some even at $24.8x. It made a 52-week low of $24.775 earlier today!

    I recall, Tim mentioned this one saying they have been redeeming partially at $25 and pays dividend monthly with 6.7% Yield

  9. For anyone who has high yield energy issues (bonds, preferreds or common) : note that spreads on all HY energy bonds are blowing out +140bps (1260bps -> 1400bps). The march to oblivion (i.e. liquidation not restructuring) for many seems irreversible. I think all the energy sector is poison right now.
    Bonds tell the true story, stocks eventually follow. Be careful.

    1. AKJ–we have been down this road a couple times in the last 10-15 years and you know that all the ‘hedges’ these folks claim to have are worth zippo.

      1. I had a panic moment yesterday when I became concerned that the 20% no further trading stop would be reached and a protective put expiring yesterday could not be exercised. Would have cost me some money if that had happened. Good trading lesson that I hope is never again relevant.

    2. What’s the sentiment on CEQP- I know it’s an oil sector preferred, and I wouldn’t be surprised to see Chesapeake finally go bankrupt over this oil war that just occurred. But they just signed Occydental Petroleum to the same pipeline. I know many on here sold already….

      Also, another question. In an environment like we are in right now, how likely are issues to be called? VER-F for example. Are companies likely to take a wait and see approach? Are companies likely to issue new issues, or do they wait for the storm to settle? I haven’t been invested through a downturn before, and I am still fairly new to the preferred arena, so just trying to broaden my understanding of how companies behave through this type of market turmoil.

      1. I still have some. I wanted to increase the position but after the oil carnage added further uncertainty I refrained from it. I don’t know why the common is sold every day and even more baffled looking at the preferred treated as equity. Something very weird going on.

        1. Gabriele, that is why there is a common saying…Preferreds are the worst of both investing worlds. They act like stocks when stocks are dropping and act like bonds when bonds are dropping.

          1. Seems pretty overdone on CEQP-. According to their investor presentation 83% of EBITDA is take-or-pay or fixed-fee. For 2020 the low end of guidance is $590 EBITDA and $350 DCF. So it would take a more than 50% decrease in EBITDA to wipe-out DCF. And even with $0 DCF they would still be able to cover the interest and pfds. Also, no debt maturities until 2023.
            https://s2.q4cdn.com/398504439/files/doc_presentations/2020/Crestwood-Investor-Deck-March-2020-vF.pdf

            Seems like some funds in MLP space are blowing up and/or deleveraging some stuff just getting dumped at any price

          2. Fantastic. All the names related to oil are bouncing well but just equities. HY preferred are a trap.

        2. I had some initially and grabbed some more an hour or so ago when they were puking them out under $4.

          Alas I should have grabbed more under $4, But my stomach had a limit today

        1. Was pondering avg. down my GLOP preferred today @ $14. I went outside to trim the trees. I come back inside, and they are up to $16. Is the reverse already in? I will wait for a bit, put in a low bid of $9, see if it hits during a market reverse if we get another one. Honestly, I need to up my A/B rated prefs/notes so I’m trying not to buy possible junk, but it pays more! Until it goes bust.

          1. The move down yesterday was absurd. The problem is they are included in the energy sector and pummeled each time crude oil crashes. Even if they have nothing to do with oil. I think the value destruction must end. GasLog should buy Glop. ASAP since partnership like MLPs are hated. Mostly for a reason.

  10. Tim,
    “Yesterday was pretty painful for our personal accounts with losses of 1 – 1.5%”
    Same here, about -1.5% yesterday. However, today, as of now, my accounts are only up about 1/3 of 1%, which is about 1/5 of yesterday’s movement. This is disproportionate because the indexes are up today much more than 1/5 of yesterday’s fall.

    ” The ‘sock drawer’ issues we own did well–barely moving”

    In the sock drawer discussion section you (and others) have mentioned some of those issues you consider sock drawers.

    Would you consider publishing the list of names of those issues you own that you consider sock drawers, if it is not too personal a question? This would be an incredible starting point to do my own research.

    Tx!

      1. Thanks!

        Whenever you have the time, and if you find it useful, would you consider building a model sock portfolio to add to the other 2 model portfolios?

        1. It’s interesting that the high yield model has accrued only 0.5% more than the other model. (before the current crush) Begs the Q- worth the extra risk?

      2. I appreciate the “sock drawer” comments and advice.
        I nabbed half-positions in ECF-A and GGT-E — not sure if the latter one qualifies as sock drawer, but I suppose it is close.

  11. A couple of names for you to investigate are “SREA” and “VOYA+B”. I already own both but they still look attractively priced right now. I also own “HESM” which has been totally slaughtered. Not completely sure why. Yes, I do know the Oil Story. I read all day and watch CNBC at the same time. You know, a multi-tasker. LOL I do think the smaller oil companies are history but not sure as to WHY the pipeline companies can’t survive. That oil still needs to be transported thru those pipelines.

    1. Agreed on SREA, Chuck. I’m currently up 24.7% on the common shares I hold of SRE. Well run outfit, despite where they do the bulk of their business.

    2. Chuck P, thanks for the tip. I sold some shares of TSCBP @$26 and trying to pick up 200 shares of SREA. If unsuccessful around $25.3 or so, I may change the order to OPINI, double IG rated note. OPINI does seem to fall whenever there is stress. Yep, my order for 200 shares filled at $25.24.
      I own 50 shares of SRE-B and quite a few SCE-H. The utility companies in Southern CA, unlike northern CA, PG & E, raises rates all the time and get the public to pay for their mistakes (San Onofre nuclear plant — complete shut down).
      Someone at Doug Le Du was asking about DX-C, as a semi reformed yield hog, I gave him some alternatives, none seems to be safe. Then I suggested OPINI or he should visit Tim’s best WEBSITE. LOL. The problem in this market is NOT solved, as opined by Tim. Just a temporary reprieve by many old men controlling this world.

      1. John, you must be the one who bought my SCE-PH Sold at cost today a little early in the market as it ended up today. Building a little dry powder. The title of Tim’s website is III, Everyone is looking at preferred’s. I think Chuck Carnavale’s over on SA Dividend growth time is coming up. Next 6 to 9 month if we slide into recession stocks that pay a dividend and low debt with cash flow will be attractively priced. WHR is the modern GE it has a monopoly on appliances. May not hit the $70 range like last recession but if it can maintain divy it will become both income grade and growth stock as we come back from a recession. WY is another, They are a REIT now although they have been known to cut the divy in the past

  12. Turn around Tuesday’s are almost as good as taco tuesdays 🙂 yesterday’s low was a logical place to bounce off that 2748 fib level. I have a bad feeling we are going to test the uptrend line and next fib level around 2600 area. ATB

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