How About That Downdraft!

I watched the downdraft in common stocks today and wondered to myself when the traders would run shares back higher—I waited all day and it didn’t happen–oh well I own no common shares of any sort right now so it wasn’t of consequence.

Reviewing the “Share Losses of All Preferreds” listings I don’t see anything except some of the “usual suspects” moving much are all–once again losses are more in the 10-25 cent range for the most part–not a big deal.

Looking at personal accounts there was nothing of note occurring–few pennies of gains–few pennies of losses.

I assume those that hold mostly preferred stocks and baby bonds experienced the same that I experienced–not much. Unfortunately this won’t continue–eventually the losses bleed into income issues–when this happens no one knows–could be next week–or it may be next year. No time to be a nervous nellie now.

We had noted that we bought the Ready Capital 6.50% baby bonds this morning and are happy with this purchase. Anytime I can find anything that looks reasonable in this interest rate environment I am happy. I keep studying the Preferred Stock of Closed End Fund page for something of quality to be available–I really love the “A” rated issues even though they will be susceptible to capital losses if we get a surprise interest rate shock. If you want a Gabelli closed end fund right now you are looking at a 5% current yield (more or less) or to get a decent current return one could buy the Gabelli Equity Trust 5.875% (NYSE:GAB-H) which is trading at $26.20. This issue became callable in 2008. In this environment why the hell is someone paying over $26 for an issue that will be called anytime now–to be replaced with an issue with a coupon likely in the 5% area.

Well we will all just wait and see what next week brings–I am fairly certain we will big moves in equities next week–but have no idea what we will see the income issue markets.

52 thoughts on “How About That Downdraft!”

  1. I agree it’s likely we will see big moves in equities next week. Summer is over. The big boys will be back in town next week.

    1. I agree, have watched him many times and I have nosed into two of Meb’s etfs that I have felt worth paying for because I can not duplicate or find a real competitor: GVAL and FYLD. Going with the CAPE reversion in an eventual ‘doing business” world. It has been hard to pick a turning point, so I have allocated some very long term Roth funds to some not domestic overpriced equity, about 10% of total holdings. Like Raoul Pol shows, over time, demographics and consumption patterns weigh.
      Would like to make a comment here regarding the CN Securities area. Very good banter and real content string showing the thinking processes that I suppose is the pragmatism and basic math and realistic risk parameters of a self-directed investor.
      Tim has provided us a good service here. I hope to stay away from adding my own commentary in that it is usually just an anxiety bleed.

  2. If Trump feels that the tariff war is hurting his re-election chances, he will INSTANTLY stop it and tweet that his relationship with China is dramatically improving. He likes being the center of attention—it’s so obvious. But, getting re-elected is the only thing that matters to him—because that will keep him at the center of attention.

    1. Once again – I hope we keep politics out of this site.

      Tim has spent a lot of time, effort and money to make the site a useful place where investment strategies can be discussed; we do not want politics destroying the site.

      Do not end up destroying Tim’s work, there are many other boards where politics can, and are, discussed. Go there if your need is to discuss politics.

        1. Hi randy–Yes it is hard to separate the markets and politics, but let’s try to keep the political statements to an absolute minimum.

    2. Me thinks you misjudge Trump. In my considered opinion, Trump is one of the few presidents we have had to whom being reelected isn’t everything. I believe he has the guts to hang tough with China, and I hope he will.

      It’s very clear that the Chinese plan to to do nothing until the elections, in the hope that Trump will lose and they (China) can go on with the status quo, that is to say stealing billions of dollars of U.S. intellectual property. We invent it, the Chinese steal it, and the U.S. loses in the exchange.

      Trump’s comment of being “the chosen one” isn’t his way of comparing himself to whomever, as the media says with derision, but his way of stating this: No one before me (Trump) has had the courage to deal with the Chinese and so it has fallen to me (Trump) to deal with them.

      Pols aren’t very good at short term pain for long term gain. To the contrary, they like short term gain for long term pain, so-called “kicking the can down the road”. It’s about reelection.

      James Clarke famously said, “A politician thinks of the next election. A statesman, of the next generation.”

      My bet is that Trump is more of a statesman than a politician, and will hold his ground on China, even if it costs him the election.

      I fully understand that Trump’s stance on China may cost him the election. I think about Elizabeth Warren as president. You should, too.

      This is not politics but investment (and estate planning advice): Read up on what the good senator has said, and written. About her plans for economic policy. And taxes. And estate taxes. Not words put in her mouth but from her own mouth.

      Think about the implications for your own personal finances, especially your estate plan. Personally, I would be crushed if the Warren estate tax plan was adopted. You might want to think about your own.

      1. Geez, Bob. Well, it IS Sunday. lol

        I think Warren has moved on from the estate tax to a wealth tax. Here’s a fact check on that wealth tax proposal:

        Personally, I doubt her wealth tax, if implemented, would affect too many here. Certainly not moi…

        Personally, my tax rates have never been lower. Never. My parents and grandparents would spin in their graves if they knew how little I pay given how much I make, thanks to all those Republican presidents who take good care of folks like me.

        “I kid you not.” –J. Paar


        1. “Personally, I doubt her wealth tax, if implemented, would affect too many here. Certainly not moi…”

          First, her wealth tax on the level she proposes won’t come close to funding all her proposals

          Second, once a wealth tax is in place, it is very easy to expand it to cover more and more of the population.

          It is a dangerous proposal

            1. Camroc, you better worry about coal too, lol. I guess we are kindred spirits. Texas is number one in terms of electricity generation from coal…And I am right behind you here in MO at number 2. Ameren MO is 70% coal generation. Our joint PacifiCorp preferred investments produces 60% of their power from coal. Indianapolis Power and Light is around 50%.
              I have a lot of preferred stock in those three coal loving companies. In fact Dont Mess with Texas, Mo, and Indiana are the top 3 consumers of coal in US.
              I would be willing to make a reasonably big wager Mrs. Warren wouldnt a fan of King Coal anymore than fracking, ha.

        1. Eddy, it’s so easy for you to criticize and delineate negativity.
          Can you please share with us just how YOU are one of the most well regarded business people in your country, then had one of the highest rated TV shows that you were the key star of, are currently a billionaire, then decided to help the United States of America by running for office, were elected by 62,984,828 registered voters, won the most votes of 30 states, won 2,626 US countries to 487 for Clinton and garnished 304 votes in the Electoral College in the Republic to become the 45th President of the United States.
          I’m sure your resume is extremely impressive and you are a superstar superior statesman that just has not been discovered yet…
          He who conquers others is strong; He who conquers himself is mighty.

          1. Hi Nomad,
            In his most recent tweet, the Great One spelled libel, “liable”. At any rate,
            I can assure you that he is not a Billionaire. I doubt he’s even worth
            500 Million. He is the greatest sociopath in US History. His presidential
            campaign was certainly an amazing feat, assisted by an extraordinarily
            arrogant and unlikable opponent, the opponent’s careless husband and
            Comey’s 2 press briefings. Not to mention, the Russians. Yet, he did
            win a very impressive Electoral College Victory, no doubt. It’s hard to
            imagine that Hillary made her last appearance here in Raleigh (unreal).
            I think he was driven to the White House to avenge O’Bama’s brutal
            take-down at the WH Correspondents’ Dinner. I do wish he could have
            been a President for the whole Country and not such a divisive, petty
            and destructive occupant of the Oval Office. As for myself, I am just
            a very disappointed long-time (almost 70yrs) Red Sox Fan.
            Cheer, Ed

  3. Historians always look back and mumble about when a conflict actually started. China will put down the protesters in Hong Kong at the point in time that incurs the least damage to their reputations. Since their reputations are pretty much going down the drain as we type, I expect that it will be fairly quickly. China’s involvement in Argentina’s ag sector could put a permanent dent in US ag demand and prices. China is an aggressive, expansionary opponent who knew long ago that we were the weaker of the two adversaries. We are ill-prepared to wait out a lengthy trade conflict – our political system guarantees that.

    While everyone on tv is yukking it up about the purchase of Greenland, this has been an issue the US military has been dealing with for the last several years as China is bidding on construction of several commercial airports there. Again, China is using is flexing it muscles abroad using its bank to finance various projects. Unlike its African neighbors, I doubt Denmark will go belly up allowing China to repossess the property.

    Its going to be a long time until November, 2020.

  4. Tim, GAM’B is another example of this. At $26.90 and 5.5% current yield way above par. I think the reason is many of these funds with the juicing served by their own preferreds in general have piss poor performance. And the owners of the fund also own the juicing preferreds. In GAM’s case the performance has been poor so long the speculation for GAM’B not being redeemed was to help mitigate the poor performance of the actual fund. Not to further infuriate the shareholders as many owned both.

    1. I used to own GAM-B, got out years ago. I agree that many of these CEFs have piss poor performance–which I hardly pay attention to. As long as they are in level 1 assets with 300% asset coverage that I have first claim to I am happy.

  5. Not going to kill myself trying to justify a bad 5% yield when I can park cash at 2%. We didn’t have that option in ’17. A few 500-800 point down days in row and it starts spilling over to the preferreds and bonds. Have your shopping list ready…

  6. Everybody can tweet all they want. After today, I dont really have much of anything that tweeting will hurt. Unless people want to protest by turning off their AC or lights. And since we are generally a soft bunch of people I suspect that form of protest wouldnt last too long anyways, lol.

    1. Grid–you saying you are out of everything but your utes? I just now looked at my etrade accounts and again NEE-N up 24 cents to 27.85, SR-A up 12 cents to 27.39 and CNLPL (which I pay not attention to) is $58.50. These are ridiculously large gains–thinking I am going to take some profits Monday even if I have no place to go with the proceeds.

      1. Tim, Im about 75% plus in Utes. I still got a chunk of LXP-C, NYCB-U, bought some SPE-B and AATRL this week, RPT-D, and long term hold PFX. I bought every share of AILLL that was sold today, ha. It aint going nowhere, next divi already declared. Bought more PPX at 25.50 today to fully replenish what I flipped at 25.76 yesterday. Might sound extreme but 4 years ago I wouldnt have owned anything but a Ute preferred, lol. So being around 75% is still a bit soft historically for me. 🙂

        1. Grid, if you bought every share of AILLL today, 200 of those were from me.
          Sold at $27.49.

          I’m hoping to buy them back below $27, or right at $27.

          Still have more, but I’ll hold out for $27.95 or so for more selling.

          1. I bought every share, Inspy, so I took them. I have sold out higher than I repurchased. This for many years was my biggest issue. If it goes under $27 I will look to add more. I am in this environment willing to let it become more committed to the portfolio like say a pig is more committed to breakfast than a chicken is.

        2. Gridbird,
          I wonder, would you kindly explain why you bot AILLL at >$27 when it can be redeemed anytime at $25?

          I’ve seen a number of posts (mainly from you) on AILLL, so forgive me if I missed one that explains this:
          Is there any info that it is unlikely to be redeemed for over a year (the time to get enough dividends ( @ $1.66/year) to get even $ if redeemed)?
          Is this a bet that it won’t be redeemed, which if wrong, you may lose close to $2? An “informed” bet? Please clarify, I am puzzled!


          1. Hey Daniel, yes I can never recommend anyone else risking it. But I have had a long history with this one. It has been callable since 1998 before Hold Co bought the utility and then renamed the preferred AILLL.
            AS far as why I take the chance…Next divi has already been declared for Oct. AILNP which is 7.75% has never been redeemed and Hold Co owns over 95% of that float and never redeemed it…The float is tiny. Not even a spec on their capitalization….They have never redeemed a preferred. They don’t issue new ones…On rate filing requests they list them as one series. And collectively they are about 4.5%, so it hides inside the group of the lower yielding sisters.
            I would considering selling these if the naked resets crater to my price point.

            1. Thx Gridbird!

              Could another reason be that they cant issue a new one at a much better rate (I reason that if they could, they would be stupid not to)? Does this mean the company is not in very good shape and thus there are some additional risks? However, I see it is rated A-. Unless they are stupid or negligent or lazy or blind, I can’t figure it out. In this environment, AILLL can even go higher, and $27 could look like a steal, and if this happens before Oct, you got a nice safe trade…
              Enjoy the divis while they last.
              Tx for your fast reply!

              1. D, They could issue QDI preferreds easily in mid 5 range. But they have never been inclined to ever issue preferred at the Hold Co or subsidiary level. These preferred are all just a mishmash of bastard preferreds issued long ago by smaller utilities before Ameren bought them out. The present ticker names are renamed tickers.

                1. Grid, I think you might be talking these Ameren suckers higher, say, up into the range of the CL&P pfds. This, of course, is okay by me. 🙂

              2. D, added morning thought… I would suggest the odds of any cap appreciation in $27 range is very small know matter how low rates go do to being past call. I just ratcheted up purchase price because they was a bit of liquidity here at that price point. Obviously there arent any 6% yield QDI ute perpetuals out there, so the risk is a call smackdown.
                Personally for most people I would hesitate before doing this type of purchase. But for me, I typically only stick to a narrow genre of preferreds for my core base. So its pretty much business as usual with this type of purchase. Just kind of like PPX.

          2. Daniel, Grid actually introduced AILLL to me years ago, and I have been holding a full position for some time now.

            As Grid says, the total value of Ameren’s preferred stock is tiny in the overall scheme of things, and their previous action ( or lack of it ) in not calling when rates were low, tells me that the odds are reasonable at least, good at best that no call will be forthcoming.

            I try to buy AILLL around $26.00 – $26.50, and sell at around $27.50. Doing this with about 20% of my position. The rest is kept for the long hual.

            1. Inspy, that was my old game plan. But price doesn’t get there anymore. I got a few below 27 a few weeks ago but paid up yesterday and stayed plus 6% anyways. I refused to pay Camrocs 27.60 though, lol.
              I kind of have thoughts of just owning all local utes and some Canadian resets. But that will take good fortune and time.

          1. Justin, Im not seeing anything different than any other trust convertible issue.
            But, I keep this stuff in Roth so it eliminates any tax issues, so I dont worry.

            1. I should have clarified. in a regular taxable account, not a Roth or Traditional IRA, is where it gets painful.
              Inside an IRA, it isn’t an issue.

              1. Another “stock” (actually a convertible bond) with the same setup is CCZ, which could lead to a nasty surprise at tax time.

                1. Justin, you bring up good points concerning taxation awareness. It probably deserves more scrutiny than it typically receives. NYCB-U has that same potential outside of tax free. KTH has given some people “phantom taxes” I have been told outside of taxable accounts also as other examples.
                  I try to sweep those problems under the rug by putting them in tax free accounts.

                2. CCZ – wow. If I have 2-3 days spare time I will look at the prospectus. I gather it’s a busted convert with a rather fat yield. Good candidate for a Roth?

      2. Sold NEE-N today, just couldn’t pass up over 10% gain even if there is nothing similar to replace it with.

        1. mikeo, thanks for the info on NEE-N. The last time I checked a week ago I was up 6.8%. Decided not to sell. Your message reminded me to check again. I sold up 11%. I don’t like selling if I’m happy with the income but 11% is almost 2 years worth of dividend.

      3. Tim, I dont own many of those way above par Utes with low relative yields to boot. I do want SR-A to drop back into mid $26 to reenter again if opportunity presents itself. I got the odd stuff..Like a nice chunk of CNIGO and IPWLO that isnt going anywhere. Or probably trading for that matter. AILLL isnt going anywhere when the Hold Co holds 95% of AILNP that is 7.75% QDI. I added more today and will take the 6% QDI and risk it in this environment. I have others and also a decent chunk of below par fixed perpetual investment grade Canadian Utes and some fixed floor reset utes too.

  7. I’ve got tired with that trade war talks. Tweet after tweet and all this unnecessary tension. As a professional day trader I find it very frustrating.
    I am interested to read your thoughts if this trade negotioans will eventually end. And will we have happy ending for both sides?

    1. I’ll predict there will be no trade deal with China until after the 2020 elections…there may be some head fakes and negotiated truces, but at this point it simply isn’t in the national interest to make a deal. There is gonna be a long overdue reckoning with the communists…both abroad and at home. :p

      1. I agree – I don’t expect a trade deal with China until after the 2020 elections. China can’t afford it and is used to the US rolling over. Trying to not be political here but give my reasoning – Trump has a different mindset (good or bad depending on your perspective) and will not roll over.

        So China will play the long game and hope they have someone else to deal with after the 2020 elections. At that point, it will be resolved one way or the other depending on who wins in 2020.

        I agree with you, this is a long overdue reckoning with China and while there will be some short term pain, the long term result would be beneficial if a new deal is achieved favorable to the US

        1. Maverick, my thoughts exactly. Not expecting any change until after the next election.

      2. JMHO ….. if no trade deal with China, and , for that matter – more trade tirades with EU, Mex, Can, etc…. until after 2020 election, then >>
        Economy here will start tanking long before. Various global econs also. And … What that means … Layoffs, Big. foreclosures. loan defaults.
        Not sure how much lower Fed Rates can stave off this spiral.
        American Global enterprises told to close shop in all other countries? Must only produce here, hire here?
        Give me a break. Who will they Really sell to? Who will buy? At what prices? Cost of production? Really??
        Perhaps some folks don’t remember …. it took around 15+ years for Japan to crawl out of a negative-rate economy decades back.
        To quote the famous bard – Miley Cyrus -:)) ‘Evolution’.
        apologies for the rant.

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