I’m Not Tempted by This Rally

There is no reason to have stocks up today–or any day really, as we have no new news and the economic damage being done is way beyond anything priced into equity markets.

I am aware of the rumored oil production cuts in Saudi Arabia and Russia–and all I can say is that this is pure BS. Maybe they cut a little–but no way they are cutting 10-15 million barrels a day–to help the U.S.? Not a chance.

Finally I did start to hear a little realism out of a airline analyst today–air travel won’t recover for at least 18-24 months (he said). I agree–and furthermore there are bunches of industries and sectors that will experience waves of bankruptcies–no printing press is big enough to bail out everyone forever.

Beyond various sectors going BK the U.S. consumer is going to be hindered for a couple years. When a huge segment of the population has no cash reserves for hard times they are going to max out their credit cards, default on their mortgages, and return their new trucks to lenders in giant numbers–to think they will have any money available to restart the economy is pure fantasy.

Sorry for the negative vibes today–I keep looking for the good news—any good news—to think we may be at a buying time–but it evades me. I am just too damned logical. Maybe I should just go illogical and declare a ‘bottom’ to the strife–but I don’t want to join those in the soup line so it isn’t going to happen.

Oh well–I wait–wait for some good news–treatments, peaking in NY, a vaccine–I could be waiting awhile.

70 thoughts on “I’m Not Tempted by This Rally”

  1. Just curious if there are any bankers in the group?? My question is who are the worlds strongest among the Mega Banks and who are the weakest??? Companies like JPM, C, WFC, USB, BAC, PNC, MS, GS, etc etc. They all have some very interesting preferreds that are still very attractively priced. Mike Mayo a banking analyist says they are all much stronger now than in the 2008/2009 crisis. But this CRISIS is way different than anything else that we have ever seen is the problem.

    1. As comparing to safety in which you seek, comparing to the worlds safest banks, none of them ever make the top 50 safest banks in the world. US Bank snuck in there a few years ago but didnt make the cut this year. The only 3 US Banks (and they consistently stay there) are CoBank, Agfirst, and Farm Credit Bank of Texas. And none of these are “real banks” in terms of general population served. CoBank has 3 preferreds and I own the CBKLP issue.
      https://www.gfmag.com/magazine/november-2019/worlds-safest-banks-2019
      Added note, I am no expert on banks and am no expert on anything. I traded a few bank debt issues for quick gains, but my only holds are CBKLP and MER-K I bought when they cratered a couple weeks ago,

      1. Grid
        Thanks the post and the attachment. Interesting that almost all the major Canadian banks qualify and are in the 50 but so few of the u.s. banks are. Not sure what this tells us but it seems important. If anyone has any thoughts on it would be interested. tia sc

    2. Chuck,
      On my radar, the two strongest with preferred’s I own are BAC and JPM. Just look at how little things like BAC-B and JPM-D and JPM-C traded down in the flushout – as compared to many others. Then, see how quickly they have shot back up and over par and mostly stayed there.

      Illiquid’s are a different story. I’m just speaking towards the big boys like what you asked about.

      WFC continues to trade very weak in my observation – likely because they are still scandal scarred.

      1. I want to give a “BIG THANK YOU” to both “Affinity4Investing and Gridbird”. I own almost all the Mega Banks preferreds. Bought them during the big swoon down thinking the bigger the better. Looked at market caps, earnings projections (which I know may be worthless-LOL) and what the analyists were saying about them, etc etc.

        1. Happy to help my friend…One more…C-S. Citi is lower rated, however, this particular issue has traded back up pretty well and seems to be holding steady in 4th place behind the BAC, JPM, and CoBank issues. Full disclosure – I own all of these. WFC would be a distant 5th place performer for me.

  2. I picked up some SOJA in an IRA this morning at 24.85. Hopefully I won’t regret it, but these days, everything feels risky.

    I’m keeping 2 years of living expenses in cash just for some peace of mind.

    1. Mortgage servicers slide as government holds off on relief
      Apr. 3, 2020 10:02 AM ET|About: Mr. Cooper Group Inc. (COOP)|By: Liz Kiesche, SA News Editor

  3. Stock up on groceries if you haven’t already. I’m hearing rumors of a 14 day national lock down with every business closed. Prepare before the panic buying at grocery stores. ATB

    1. Around here (NY) most people have plenty of groceries. Chain grocery stores have had sales numbers 200 to 300% above normal. Went to Costco yesterday and never saw so few cars in the parking lot. Perhaps most people don’t have any more room to store things. Water had been a huge seller and this time I noticed almost nobody buying any. I’ll take the bet that groceries stores will not be forced to close.

  4. Even if Saudi’s and Russians come to a deal, where will the oil demand come from? World business is shutdown and travel (air, cruises) will take years to recover. Businesses closed with people working at home (no cars on the road). So they cut 10-12 million barrels, the demand drop may be even bigger.

    I have no faith they will come to this kind of deal.

    Am I buying and selling? Absolutely. If I have a higher risk issue down 20% and a lower risk issue down 20% (high credit rating). I will take the 20% loss on the low risk and buy the higher credit rating also down 20%. Will it help in the short term? No, but long term it should.

    1. Problem is the high risk issue is down 40% and the low risk issue is down 20%. It becomes more challenging.

    1. You’re kidding right? Energy is now only 2.6% of the S&P 500. Do you want to be overweight or underweight Energy? My bet is 2-3% energy weight is plenty. Demand will be slow to come back.

  5. There is good news if you are young and still have a paycheck. The forward expected 10 year return just went up by ~30%. Over the long horizon that young people have, this is great news. They can continue adding funds to their 401Ks or their robo traders. Plus older folks that have dividend reinvestment plans are buying ~ 30% more shares. So there is a small silver lining to all of this. . .

  6. On a side note but yet related to the nightmare that is going on. We have thought about buying a condo in a warm climate (I live in Omaha, where the weather is usually crappy) and Iam starting to think there might be some bargains up for sale over the next few months. Once some of these unsophisticated older investors check their portfolio statements and see that they have now lost 30+% they may decide they really don’t need that second home afterall.

    1. Great point Chuck. There is bound to be sticker shock when some folks check their 401k statements in a few days. I can just picture the for sale signs popping up. The wife and I have been thinking about getting another place around Bend, Oregon. Might be some good values in the next 6 months.

    2. Chuck – I went that route after the housing collapse of ’07-’09. I bought several condos at Red Rox in Phoenix. They were practically giving them away. The Phoenix area was one of the hardest hit areas in the entire country. I was able to buy, in the mid five figures, properties that had sold just a few years before for 4-5 times what I paid. The deals then required very little down. I sold the last of them about three years ago for a very nice return. My only regret is I didn’t buy more.

      While I don’t anticipate a real estate collapse like the last one, I am keeping watch and will jump if the opportunity presents itself. I would note that every one of my purchases were from out of state investors, and not from older mom-and-pop 2nd home types.

      1. The 2008 housing crisis was different than the coming one. Different causes, different effects. Buying rental houses will be risky because we won’t see the same recovery, many people will be broke for a long time, and laws will be very pro-tenant.
        But even empty houses could be better than money if we have hyperinflation.

    3. Chuck, Steve Miller over on SA went around the country looking at different locations and I bet he looked at all the angles of taxes, medical care etc. Before he retired and moved to Az. Please check out places before buying. Not thought about is the water situation in the West, also higher temps. My mechanic moved his mom to Phoenix and first thing he noticed all cars had black tinted windows and no one was outside due to heat. As for Oregon no sales tax, but property taxes are probably 1/3rd to 1/2 higher then here in Cal.
      With all the Californian’s moving to Oregon places like Bend, Ashland , Medford are growing and so is property prices.
      On other hand I am supplying Lead to new medical centers in Eugene, Medford, and Bend so Medical is going to be good. I kept my vacation home in last recession with being out of work over a yr so mine isn’t available this time around either

  7. AATRL that was in a lot of posts here seems to be visiting $31s again.

    I did snag a small amount but there are many others that I own at higher prices that I am waiting to unload as yet at a smaller loss than they are at right now. Maybe a new Fed program buying mREITs or DC stimulus to Oil industry may do the trick!

  8. The market jumped after the tweet by Trump. The Russians are now saying it’s not true. There are no talks between Russia and Saudi to cut production. Why make such an announcement? Trying to juice up the market? Screw with the shorts? This just lowers his credibility yet again.
    Huge increase in the numbers of unemployed and some on the street are proclaiming that this is just a rearview mirror number. I diagree and strongly believe that these numbers will jump higher in the coming weeks. And I agree with you Tim that the average consumer is going take a big hit to income and confidence and the idea of a V shaped economic recovery is just a fallacy. This is unprecedented and the standard forecasting models won’t work. Still sitting on the sidelines. I have my eye on a couple of things but haven’t made a move.

    1. So now the Russians are to be believed and Trump condemned? Sounds as reasonable as believing anything coming out of the Chinese propaganda machine about Covid or anything else. The tweet said “…I expect & hope”, yes, words a bit at odds with each other – but lets see what happens in the coming days to see if they cut back. Obviously, he’s trying to do something rather than just sitting on his hands like all of the other world heads of state.

      They have no choice but to cut back. They’re running out of tin cups to store it in.

      1. Hi Affinity,
        Agree that NOTHING coming out of RUSSIA and CHINA is to be believed.
        On another subject…I know you were holding AHL Preferred at one point. As you know they are owned by APO which is rated A by S&P. I see their AHL-E 5.625% callable in 10/1/24 trading at $18.50. Seems like a very good buy to me. Do you still hold any AHL ? Would appreciate your opinion.
        Thanks
        Gary

        1. Hi Gary,
          Good to hear from you. I’m still holding the same position in it – haven’t added or sold any. I’m comfortable with both the dual IG ratings and the fact that it’s QDI in my taxable acct. I don’t really like the non-cumulative aspect and I don’t particularly like the insurance industry holdings at this point with all of this chaos because we really don’t know a lot about what the exposures/impacts are as so much of what they do is not super transparent. Their business is largely ‘liability’ right, and so with where we are – there’s too much of that sloshing around for my liking – but I think it’s silly to sell it here with no bad news coming directly from them. Wouldn’t blame you at all if you bought more here, but for me, I’m focusing my sights on adding to the common side of my portfolios and rebalancing my ‘fixed’ side to place more weight into the ute’s and banking securities on a very specific basis.

          If I were buying in this sector, I think I’d be more happy adding to say an AIG-A or a THGA (which I own). They all seem to have been busted down a bit but certainly not knocked out. If you’re looking to juice some yield, PIHPP is one to investigate. I recently liquidated a huge PIHPP set of positions – again, because I don’t care for this area as much as I see opportunity in others. PIHPP is quite volatile but also trading quite strongly compared to the others.

          Due diligence is the key as you know…

          1. Thanks for the response Affinity…
            Good to hear you are still holding AHL. As you say, I like it too except for the non-cumulative which is probably why it has taken such a big hit despite being IG and QDI. Still A paper at that price / yield is hard to find.
            Thanks for the tip on AIG-A, THGA and PIHPP. Now I have some homework to do tonight which is good. Other than OZARK getting a bit bored with Netflix / streaming. Cheers and have a good night

      2. What’s wrong with Science? Just facts, a global commitment to real, BigData? Oh yeah, the factual history of Science is horrifying once it got politicized. People want to live in the myth not study facts. It’s more FUN! Same in investing.

    2. AKJ – Please keep your politics out of this and off the board, thanks

      There are lots of news reports that the Saudis called for an emergency meeting of OPEC+ for just this purpose. As I posted earlier today, it makes sense that they all agree to this for a variety of reasons. And I posited that US producers would be part of it

      Here is a Forbes article suggesting the same:

      https://www.forbes.com/sites/daneberhart/2020/04/02/trump-takes-to-twitter-to-press-opec-russia-for-cuts/#1031d3346ec2

    3. Affinity4investing – If you are going to talk politics and repeat propaganda – do us all a favor and get off the site!

      1. Back up there comrade, looks like the propaganda I was discussing was actually 100% the truth:

        https://finance.yahoo.com/news/russian-producers-ready-oil-cuts-115644017.html?.tsrc=fin-srch

        (Bloomberg) — Russian President Vladimir Putin said his country is prepared to take part in deep cuts in oil production together with Saudi Arabia and other major producers to halt the slide in prices, echoing an announcement by his U.S. counterpart Donald Trump.

        “We are ready to reach terms with partners within the framework of OPEC+ and are ready to cooperate with the United States on this issue,” Putin said on Friday during a video conference with top government officials and oil executives. “I believe that it is necessary to combine efforts in order to balance the market and reduce output.”

        Russia sees a reduction in global oil production of about 10 million barrels a day as possible, and is ready to participate in this “on a partnership” basis, Putin said.

        Putin gave Russias’s first confirmation of its willingness to take part in cuts announced by Trump Thursday in a Tweet that drove Brent prices up as much as 47%.

        Putin Echoes Trump’s Call for Oil Producers to Cut Output

        Putin, who spoke with Trump about the market on Monday, said Russia is in “close contact” with Saudi Arabia. Russia is comfortable with a price about $42 a barrel, and doesn’t want the cost of oil to be “too high or too low,” he said. He indicated that Russia would participate in an April 6 meeting of OPEC and other oil-producing nations.

        ——
        So like I said, let’s see what happens in the coming days, but no doubt, there is progress happening on an agreement and that’s a positive for everyone.

        1. The problem is still demand.. An oil analyst guy said oil use has went from about 100 million to 75 million… Oil was in surplus prior to Corona. 10 million cut out of production doesnt even address that problem. And then if the past is an indicator there are too many cheaters whenever production limits are agreed upon.

          1. Totally agree, Grid… They call it ‘demand destruction’ for a reason don’t they? However, they are discussing a lot of positive things that should help and in one way or the other, we are all affected by what happens in the energy patch. Doubtful either Russia or SA will stick to an agreement, but at least 2/3rds of this equation is heading in the same direction.

            The US producers need to learn their lesson from this endless pumping, but I doubt they will.

        2. More fresh news on the energy front:

          https://www.investors.com/news/oil-prices-focus-trump-ceo-opec-emergency-meeting/?src=A00220&yptr=yahoo

          Additional information regarding our PRESIDENTs meetings today as well as the emergency meeting(s) happening Monday.

          If all goes well, we may see that our PRESIDENT has been able to broker somewhat of a truce and our energy sector can hopefully get a bottom under it and stem some of the bleeding. Fingers crossed… and with appreciation for all efforts by anyone to help out the US producers.

  9. Tim,
    I agree, no good news, kind of a “waiting for the other shoe to fall” feeling. I am an older guy and the last time I remember anything that felt like this was when we had the runaway inflation of 1979-1981, I believe it peaked around 14.5% or so in early 1980. Everyone was buying physical gold and silver for ever increasing prices. I sold my house in March of 1981 and as I recall the rate for the buyer bumped up several times during escrow, the final rate was 13.5% for an FHA loan. I rented for a couple years in the area I moved to while the money from my house was in 14.5% one year Treasury bills. We were all thinking the end of the world was near and it would soon take wheelbarrows of dollars to buy bread, but everyone was quite relieved when the inflation rate was ONLY 6.5% a year later. Just like this, things were pretty grim for many months, but if we all just keep good thoughts and help our family and neighbors we will be ok.

    1. Yes Bills–we bought a house in Twin Falls Idaho in 1980—I believe our rate was around 13%–being young and ignorant we didn’t really mind paying 13%–brand new house was just $49,000 so the payment was pretty small.

      1. Funny Tim,
        I bought my first home in 83 at 26 and single. Was about 63,000 and 12-1/4% my Dad thought I was crazy. Had roommates to help pay it. 1-1/2yrs later my job cut my hours. Was not a SWAN investment

  10. I think you are correct, never to be paid off and nothing an individual can do about it. Don’t want to be a downer but it looks like a lifetime of debt and a legacy of the same for our descendants. Hope I’m wrong. Hang in there.

  11. FYI: CNP cut its dividend to 15 cents a quarter from 29 cents….and Barrons reports these 4 mortgage REITs couldn’t meet their margin calls: MITT, MFA, NYMT and IVR.

  12. Is it coincidental when energy preferred pipelines and common stocks of energy stocks have lost up to eighty percent of their value, the Saudis and Russian now get along to make an agreement to turn off the future taps of oil (not enough storage to take the proposed 12 million barrel increase anyway with the millions of barrel cut in demand each day) Everyone in storage of oil knew that fact.. However, buying assets at a fire sale of over 80 percent off with well heeled sovereign funds and proceeds from the recent Aramco offering -that can be done. Nothing like owning the Permian Basin at 80 percent off and no threat of the Iran military destroying your refineries with low cost drones. Sorry pension funds, investors, retirees, you lose again.

  13. Tim,
    I guess the only good news I can offer is trucks are lined out the streets at Port of Oakland. But they were closed March 31st for a holiday. On other hand all companies have been reducing orders or cutting their orders to Chinese manufacturers so kind of a wash. We still will not see the effects of job losses and business closures until probably end of April. In that case, market is not forward looking and irrational

  14. Tim Im with you when the market goes up within no news and unemployment rate this high? Makes zero sense to me other than someone incorrectly thinks this is the bottom? No way. Market goes up when death rate increases?

    I’m waiting for the next down leg to S&P 2150 IMHO
    There is going. to be massive unemployment and Bankruptcy and very bad profits this market cannot go up like this unless shorts are covering.

    1. Guys, today is Thursday, right? This is the game they play. The market will be up today and lure you in. Guess what happens tomorrow? Down, down, and especially around 330pm…..whoosh! liquidations….. Rinse and repeat.

  15. Tim; Are you still 59% cash position??? Iam at 16% cash which is enough for me to live comfortably around 8 1/2 years. The incredible bargains over the last week or so were just too much for me not to buy some things. I stuck with incredibly “High Quality Companies” that I just see a really hard time as to them going away into oblivion. I agree with what you said and will just add this as words of wisdom: “We don’t know what we don’t know” and thats the world we are now living in. Very Sad Times for Millions. One question for you Tim— Do you see the Big Mega Banks running into trouble with mortgage and car defaults?????

    1. Chuck–no about 45% cash as I had done some adds etc. I am worrying a bit about the big banks–there is no appetite to bail them out again.

      1. Tim; THANK YOU for your reply. I really do appreciate hearing from you. Many of us including myself read carefully what you say and we all learn by your wisdom. Iam in all the “Mega Banks” preferreds hoping they can muster thru this crisis. I own 8 different very large banks preferreds. No small ones at all. Those 8 banks comprise 17% of my holdings. Its funny in life we all feel that we are “Properly Diversified” but in times like this are we really?????

  16. Well at least you are looking at reality.

    I continue to fill positions in IG income, IPLDP is almost filled

    I am foaming at the mouth for WFC-L and JPM-C but I don’t have the cash.
    Would love to start positions in O, STAG and other utilities

    but my spidy sense tells me there is more down side

  17. Tim, I love your site, it has helped me to make money since I found it a year ago.

    I have found a strategy that helps me sleep at night. I have been balancing any nibbling – when I say nibbling, I have a new rule of buying only 10 shares/stock at a time and no more than $1,000/day (E-trade does not charge me for trades). I then hedge my long positions with adding to my SDS short position.

    I am not either up or down typically on any day, but I can leg in on the way down without worrying about being down a lot. When it looks like we have reached the bottom I will sell my shorts, add to my longs, and hopefully be well positioned for a slow recovery.

    By the way, E-trade savings accounts are paying 1.75% interest, FDIC insured up to $250,000 per savings account. Good place to park your dry powder.

    I

    1. I may be wrong but I don’t think the E-Trade saving account is anywhere near 1.7%. Loved to be corrected if I am wrong.

          1. Marcus (Goldman Sachs) is still at 1.7% Don’t know if it will last. No-penalty CD at the same rate. Or you can buy a regular CD and you have 30 days to add money at the same rate. I bought a $1000 CD last month and when rates dropped I added a lot more.

    2. Todd–you are wise I think–no use jumping in with both feet yet–in that regard free trades have been a nice bonus. I play in and out and in and out of SDS–in no scientific way.

  18. Extreme negativity is how bottoms are formed. Not saying we’re there but the stream of bad news and sentiment is certainly outweighing any positive news.

    1. Tim–I have been a ‘lurker’ on your site and a couple of others for quite a while. I have only posted on ‘Morningstar Forums’ 3 or 4 times throughout the years. I want to thank you very much for your site & your commentaries which have proved very valuable to me. You also have a number of really well-informed regulars as well! As for me, between Quantumonline and this venue, I get more valuable/actionable info than from a slew of so-called gurus! I have heavily invested in Preferred issues & Baby Bonds for a number of years. I will post & comment when I think it will be of some help and add to the ‘picture’ so-to speak.

  19. Spoken like a true Diogenes of the Dow, Tim. What do you make of the 10-year at 60 basis points? Take care, everybody.

    1. D–I have mostly ignored the interest rate complex—it ain’t good, but you know it isn’t going to change no matter what we think. I am more fearful; when I see the Fed open a new repo facility for foreign government use to take our treasuries from them for dollars. We are going to need a massive incinerator to burn treasuries in the future–because they aren’t ever going to be paid off.

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