We know that equity trading will be suspended this morning after the open as the 7% circuit beaker trading halt will kick in after a few minutes. I fully expect that we may close down 10% today–may even hit the second circuit breaker which is 13% during the day.
Personally I have done most of what I can do as far as ‘positioning’ is concerned, but I do continue to hold some perpetual preferreds of less than investment grade (for instance VER-F and AMH-F and others). I may or may not continue to trim some shares, although my intention is to primarily hold at this point.
I have all the ‘starter’ positions I bought last week and am prepared to add to those positions–the only question is when and at what price? The Covid 19 issue is still a huge unknown and I want to be invested when we start to see some daylight on the issue, BUT I don’t know if we are in the 1st or 5th inning–just don’t know. I continue to have adequate dry powder.
For those looking for starter positions I would probably look in the CEF preferreds and the utility issues. It is too early to buy bunches–spread out anything you do.
Bought another 100 shares of CMSC @ $24.20. Guess I got too anxious, it is $23.93 now. Also bought another 100 of WFC-X at $23.28 and it is still around that, so that worked out.
Bill S–can’t always hit the lowest price, but I think you did the right thing.
I picked up WFC-R 6.625% fixed to floating not callable until 2024. Seems like it fits in the sock drawer to me, unless rates skyrocket or dividends are suspended. Anyone else pick it up at 25 or below?
Am i being naive to think dividends for bank preferreds have a fat chance of being suspended?
grharmon: I looked back at WFC common dividend. It was cut from 2009-2012, but it was paid every month. So I think that means all preferred dividends were paid as usual during that time. No guarantee this time around, but encouraging as the banks are in better shape now.
Picked up 400 shs pbctp at 21.40
The CFO bought 2,000 shs at 22.53 Friday.
The CFO !
No guarantee of course, but hey, You can get it cheaper than the CFO.
EDIT: Yikes, it just traded at 20.56
Never mind.
Appreciate it Tim. Thank you. Great site.
Thanks Cincy
There is a lot of human nature in play in the markets. In mid-2014, I bought into the oil boom looking for good div income. Then OPEC started playing its oil market game and several of my stocks suspended the divs. Thinking the market would come back, I held on as share prices dropped. Then, several of the companies declared Ch 11 BK, wiping me out. Management kept their jobs, re-organized, gave themselves obscene bonuses (Linco), and issued new common equity. I have scars.
If you feel good about buying anything at Dow 20,000, you would likely love the prices when the Dow is half that. The absurdly high yields you are starting to see may end up being a trap as it is time to question all dividend payouts including preferreds. Just got a letter from Southern Cal Gas that they won’t shut off my gas if I fail to make a payment. So, then are Ute divs really OK? Mayor of Los Angeles just proclaimed you will not be evicted if you fail to pay your rent. Could that impact certain REIT cash flows? The dominos are falling and maybe the only cash that will flow will be at the supermarkets.
Don–I don’t think dividends of any COMMON shares are safe right now as these will be the first thing to go. Obviously if the world ends everything is at risk–but we won’t need money if that is the case. If one believes the absolute worst will happen they should be in pure cash.
I think we are in the 2nd inning and the game may go extra innings. I think Americans are under rating how bad it is going to get. I think hospitals will start turning away sick people because all of their beds are full. When news reports start showing this is when investors will really panic. Hope I am wrong.
Markets are forward looking. I think we hit bottom before peak virus. Though that could be awhile and a big move down from here.
Two thumbs up Tex
Saw some good analysis on how this virus seems to be hitting regions throughout the world within a particular weather band, which would explain why the break outs seem to be skipping some densely populated areas. Wuhan, Seattle, Qom, and Lombardy all share the same temperature/humidity characteristics at the time their outbreaks occurred. Now Wuhan is warmer and things there are improving. This would also explain the relative lack of outbreaks in Africa and places like Mexico. If this weather analysis is accurate, the US could be out of extreme danger in 4-6 weeks.
Citidel how about moving up that extreme danger ending to end of today. Im tired of seeing red.
Link?
Tim,
Funny your expressing what I was thinking the past year in terms of baseball. The Corona Virus has changed the game as to where the economy was headed. I guess we have a game delay due to thunder and lightening and it may actually call a halt to the game.
I don’t think we are in the first inning, maybe the second. We will see this week.
I had a buy order in on SCE-PH at 19.85 based off Thurs. low , just now moved it to 18.95 maybe gets filled with a panicked seller or not don’t care.
Tim are your concerned preferreds from AGNC or NLY would not be able to pay dividends? I guess it’s a possibility, but pretty unlikely?
Not really concerned on the preferreds–but the common of every company is becoming highly suspect for a few quarters.
I have a good amount of NLY and AGNC preferreds. My plan is to swap between them on the way down, picking up gains from the wild swings. But they’re falling too fast to keep up. Only real disaster would be bankruptcy. Price swings are not a long term problem if they stay solvent. Suspended dividends is a temporary annoyance considering the alternative.
Martin, It depends on issue and certainty of payment being reinstated as far as price movements go (if/when normalcy returns). Take the CBL preferreds they are suspended and are priced to never pay out. PCG preferreds never really routed deeply after suspension (in fact the 6% issue has largely stayed above par most of the time) because market believed eventual repayment.
And then you got the “things change” scenario…OSBCP suspended and cratered from $10 par to way under $5…But after bail out helped, they eventually climbed to over $13 several years before 5 year max suspension was ending as market knew eventually those interest payments would in deed get eventually paid and baked those interest payments into the price.
AGNC and NLY are among the safest REIT preferreds. Though I probably shouldn’t say “safe” and “REIT” in the same sentence.
Not to be “that” guy — but what if the market implodes 50% or more with some of these CEF preferreds? I know they have guidelines but are they really going to sell more common shares? This isn’t a “gotcha” question but an honest one — what if equity values fall so much that the 200% asset rule is violated?
Good point Cincy,
I think holding on and waiting for some common stocks to fall into a good price range that have solid businesses that will recover and cash reserves with low debt AND also pay a dividend may look good over the next several months
Cincy–no problem on the question. If you believe that common shares in general are going to 5000 on the DJIA then there could be problems–BUT every penny of common share value is available to preferred holders (after debt if they have any which most don’t). The CEF has a quarter or two to raise funds if they fall below the 200%–it is not immediate. During 2009, 2010 Gabelli sold massive amounts of common shares and yes they will again–but not while prices are falling daily.
Here is an article I wrote in 2011 on SA.
https://seekingalpha.com/article/265958-preferred-shares-of-these-4-cefs-for-a-conservative-outlook
Of course there are never any guarantees–most certainly not from me.