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Incredible Move Lower Yesterday!!

NOTE–I would very much like to participate more in comments etc., but I have never been more busy with my real business (appraising) so am forced to be out of the office most of the day.

I don’t remember a move like today in preferreds and baby bonds–not just the out and out drops, but the moves lower with giant bounces in some issues. Absolutely crazy.

Now I do remember very scary times in 2008-2009, but totally different in terms of the causes–at least we could identify the causes and over the course of weeks and months a fix could be implemented. NOW we know the root cause of the decimation, but the fix will take a very long time. Blood will continue to run in the street until we can ‘corner the beast’ and kill it (or at least treat it).

As you all know–simply by looking at any number of the spreadsheets on this site that there are dozens of preferred issues trading at $10/share and under–all of which were $25 just a couple weeks ago. It is your job, and mine, to figure out who is going to survive–and which of the companies are going to go broke. All made more complicated by the knowledge that the Federal government will bail some out–while others are left to be liquidated.

I want to believe that some or all the mREITs will survive–this is where much of the potential opportunity lies. In this list of mREIT preferreds.

Of course I have mentioned the CEF preferreds and CEF preferreds–and have nibbled with starter positions–now all are at lower prices than just a couple days ago–but it is just a nibble, nibble.

For some folks wondering about coverage ratios on CEF preferreds I just did 1 spot check tonight–on Gabelli Equity (GAB) and even after all the down draft in assets (commons stocks) the CEF has a coverage ratio of well over 300% (as of 3/17/20)–so coverage ratios on the various Gabelli funds are holding up, but based on history I fully expect Mario Gabelli to file shelf registrations for all their CEFs to be ready to sell wheelbarrows full of common shares.

I think that some nice money will be made on mid quality preferred issues – as I have mentioned American Homes 4 Rent (AMH) comes to mind–they have 5 preferreds outstanding. There is a 6.5% coupon issue trading at $17.95–some time soon nibble, nibble. Single family housing–rentals–there could be short term pain but in the end they will thrive.

Annaly Capital (NLY) the giant mREIT has a 6.95% issue trading down around $10.95–some time soon nibble, nibble.

One last note–nibble, nibble can be 25, 50 or 75 shares–most of us are used to buying 200 to 1000 shares (some much more)–remember since we are not paying commissions we can buy any amount–buy small and spread it around–you can come back time and time again for a small nibble.

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