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.

61 thoughts on “Incredible Move Lower Yesterday!!”

  1. I have rolled over my shares so much the past two weeks or so its almost unrecognizable. Added all sorts of ute baby bonds from at least 4 different utes. Even added old friend KTN back into the fold this morning at 26.15. Late in the day I got back into LANDP at 21.75 after last selling out at 26. Had to buy one illiquid, I sold off IPWLK at $104 a week or so ago and bought back a modest 100 shares at $101.
    I have really made an effort past (for mental sanity) couple days to squeeze a meaningful amount of term dated issues. Got a decent slug of old friend ASRVP along with KTH, KTN, and LANDP to keep for that reasons and not cap gains. Overall yes I gained a lot back thanks to a few big jumpers, but overall still down. But a nice consolation prize is my incoming income has increased and overall credit safety also in step. I am pleased with that. I would suspect 90% or more is easily IG bond rated or preferreds from IG bond rated companies.

  2. Looks like big preferred fire sale was for an hour or so yesterday. Hope you got some of what you wanted.

  3. NEW YORK, (Reuters) – The Federal Reserve bought $17.398 billion of agency mortgage-backed securities in the week
    from Mar. 12 to Mar. 18, compared with $878 million purchased the previous week, the New York Federal Reserve Bank said on Thursday.
    In a move to help the housing market begun in October 2011, the U.S. central bank has been using funds from principal payments
    on the agency debt and agency mortgage-backed securities, or MBS, it holds to reinvest in agency MBS.
    The New York Fed said on its website the Fed sold no mortgage securities guaranteed by Fannie Mae FNMA.OB, Freddie Mac FMCC.OB or the Government National Mortgage Association, or Ginnie Mae, in the latest week. It sold none the prior week.

  4. I noticed that utilities like PPL are paying 7% on their common. That is getting to be very tempting. But I think stocks will still fall a bit.

    The analysis I read today though said the market seems to be fairly priced now for what they project earnings to be. The problem is that earnings are a lot more unpredictable in this situation. They are projecting a 10-15% decrease in earnings. It will be interesting to see.

  5. Two issues that I have been loading up on over the last 2 days are “WFC+R” and “MS+F”. In my humble opinion they are really mispriced quite badly. Go back 2 months ago and see what they were priced. Shocking that these 2 high quality companies with incredible coupons and great call protection can be priced so wrong. I loaded up the truck on both issues.

    1. USB-M looks a good with an A3 and BBB credit rating 6.5% to 4.468% floating, a little better credit rating and floating rate than WFC+R

    1. Jim probably the same reason that I bought Spire at $16.30 and sold at $24 an hour later…Crazy times…

      1. Gridbird, any idea why SLMNP is in the dumpster, Quantum has changed the ratings to NR/NF is LYB going to drop the poison pill and redeem, traded down to $851 this morning.

        1. Saguaro, remember the law of big numbers. It isnt down anymore than A rated baby bonds and not destroyed like hospitality and MLPs. And remember the put is $802 ish… This is cyclical industry and these outfits can suffer in bad economic times.

          1. That may be, but I am sooooooooo glad I sold 3/4 of mine @ ~1045.

            I’d way more like to be lucky than good. 😉


            1. I sold most of mine at 1042, because I wanted to use proceeds to buy other stuff that sold off… and then the new stuff sold off some more, ha. So I doubt I gained much…..

              1. Same here. Out at $1,042 to reallocate though also had growing concern about the “Social Responsibility” sellers, the anti-plastics movement and the unusually competitive yield for an IG issue.

        2. Look at the chart for it. Back in 2016 it appears to have traded down to under $700.00.
          If this really hits the fan, I would expect it to possibly trade back down there.

          1. That seems so odd……. If you can put it back to the company at 802 why would it ever trade at 700???? Buy at 700, put to the company, wash, repeat over and over…. I’m not saying it didn’t but seems like it would be a great opportunity…. Is there a company imposed limit on nubmner of shares that can be put back in a specified period of time?

            1. you can’t put it to the company if they are bankrupt, so it would in theory only trade below the put value if the co was in distress

              1. Yes that would be my take. The $700 price is irrelevant because that was when it was just weaker A Schulman who had just got fleeced on a snake oil invention they bought for millions and it didnt work. They actually were looking for someone to buy them. LYB did in 2018 and that is the genesis of the “put” at acquisition since the actual convertible provision no longer exists.

  6. I bought a full position in RMPLp 5 7/8% today; considering it matures on 10/31/24 I calculate the yield to maturity at 10.15%

    It looked like a steal to me (I know, famous last words).

    Got it at 21; now at 22.82

  7. Utility prefs good buys here? I mean 6+% for USA utilities?? Just concerned about a recession… Was seriously looking at m-reit prefs, but I slept in, snooze you loose. LOL

  8. I sold a huge amount of SR-A at $24. I got a chunk at $16 today and quite frankly bought too much at $23 and$22. Still own a full position but not 20% of my stash anymore, lol.

  9. Selling out of some of my energy preferreds today – will reallocate the funds when we get the next inevitable mkt plunge…

  10. Don’t ignore KTH. An investment grade,8% UTE selling for $29.5. Non callable, matures 4/6/28 at $27.10. A $1.00 dividend the end of April.
    Recently, this stock was priced in the $33 range. Look and see if it fits your needs.

  11. Hi.. Tim.. today is my Birthday, and just trying to bring all my A-rate pref. and BB. below $25 par rate . Ty. for this site ..

  12. CMO – both common and prefs are priced out of this world. Only 4-5x leveraged and “only” investing in ARMs. Press release with estimated BV of 7,7. Commons are trade around 2,5 – 3,5 ish and prefs 9-12 ish….

    Talk about a margin call yesterday. Som CEF were down 50-90 pct. MLP’s. NEVER seen anything like this in one day – Not even in 08. Back then it was a civilized sell off compared to this. Unless the world ends…and if it does it doesn’t matter anyway. Remember to hold some gold and silver as well. Wery few countries can afford those bailouts that we are seeing…

  13. I am selling covered calls on my regular stocks into this rally. For instance, I bgt MAIN this week at 24 and 16 for a $20 avg. Just sold the Apr 17 $25.00 calls for $1.20. If called away, I get $26.20 total or a 30%+ return in 4 weeks and I collect one month’s divvy. If not called, I collect the monthly divvy and the $1.20/share premo. That is like getting 6 extra monthly divvy payments in a span of one month…riding this bronco as it were.

    1. Be careful not to be locked in those calls. It happened to me several times. Implied volatility is enticing but…caveat emptor.

  14. I chose preferred to avoid trading but this sector is become a kinda lottery. I tried to check some of the CEF on sale but FFC that seemed to lead has been sold like the others and I don’t know if there’s some with more conservative asset allocation (avoiding energy and not picking anything below B rating).
    JPT looks interesting because of the 2022 term (if we and them will still be alive by then according to recent crazy moves).

    1. Ford dividend suspension also for preferreds? Looking for that info. but unable to find it.

      I do own F-C the 6% coupon baby bond which is up a mere 22% today and showing next ex-divd May 14th.

      I say this is up a nere 22% as some others such as AGNCP which I own some of is up 60% today alone.

  15. Anyone have any thoughts on the safety of the ute/energy preferreds continuing to pay-(and their parent companies keep dividends without cutting them)? seem like some good deals to me but would be grateful for any thoughts/comments/opinions. Especially Duke, Southern, Dominion, Entergy, CNP, DTY. Asking for a (nervous) friend! 🙂

    1. Hey Franklin,
      No guaranties here but these should be relatively safe depending on how much energy consumption declines in their various localities. If this goes on for months with them forced to forgive utility bill payments I wouldn’t be surprised to see common dividend cuts. The baby bonds of the higher quality names should be safe.

      1. Chris, my worthless opinion agrees with you. The carnage in the debt market has been more pronounced than the commons. Why worry over the puny dividends and stress of payment when you can get IG subordinate debt from Utes at over 7%. I bought some CMSC today and joined the club.

        1. Grid, I’m trying to get myself to deploy some dry powder in ute preferreds but this clause is slowing down.
          “The issuer may, on one or more occasions, defer the quarterly interest payments on the Notes for up to 40 consecutive quarterly periods”
          Your thoughts?

          1. MnMike this is pretty standard affair. Remember a company with this clause has to suspend common dividends and any preferreds first. They just dont willy nilly suspend. They are in crisis mode if this happens. AES-C had this deferral clause and they damn well went bankrupt in 2003 and AES-C went under $5 and it was never suspended.
            PECO Energy issued a 1998 non callable subordinate debt with this clause (KTH is soley this actual debt) that matures in 2028. Never a deferral. Put it this way, if you own a company that has to use that clause, you wont like their long term viability future.

            1. Grid
              Sorry to hassle you but yesterday your mentioned untility’s issuing mortgage backed bonds. Can I trouble you to ask who besides Entergy has issued these bonds as not sure how to identify them. I’m sure several readers here would be interested. thanks your help on this. best SC
              ps I posted this in another location on the site but am riposting here as it may more easily catch your eye here. apologies for the double post. sc

          2. MnMike, Added thought..See this type of debt is called Mezzanine debt…Bottom rung debt. Credit agencies sometime give it a 25%-50% allotment as equity credit instead of debt because of its equity characteristic. In other words its treated more like a preferred than a senior debt instrument.
            Because this allows financial flexibility in stress for suspension, credit agencies view it with equity like characteristics.

        2. Between yesterday and a few this morning I could start a small ute note fund. Eight new positions and a couple adds. Saw 10,000 KTBA for sale @ $25 this morning. Never saw that before. I already own $25 so passed. They sold 1,000 and pulled it after they must have found some money elsewhere. I’m keeping my cash allotment level. Either flips or ouches. Maybe get another big plunge even lower down the road. Will be very stressful to buy into but will need cash for that.

  16. This move lower is tectonic and seemingly very, very stupid for the sellers. The targets are so many now that the most difficult part for me is to decide where I must deploy my capital.

  17. MONACO, March 19, 2020 (GLOBE NEWSWIRE) — Safe Bulkers, Inc. (the “Company”) (SB), an international provider of marine drybulk transportation services, announced today that it has authorized the expansion of the previously announced share repurchase program with respect to 5,000,000 shares to 6,500,000 shares of the Company’s common stock. As of March 16, 2020, the Company has repurchased 3,093,035 shares of the Company’s common stock under the pre-existing share repurchase program and 3,406,965 shares of the Company’s common stock remain available for repurchase under the expanded share repurchase program. If the maximum number of shares of the Company’s common stock are purchased pursuant to the repurchase program, it would represent approximately 3.3% of the shares of the Company’s outstanding common stock and 6.6% of its public float.
    The Company also announced today that it has authorized a share repurchase program under which it may from time to time in the future purchase up to 100,000 shares of 8.00% Series C Cumulative Redeemable Perpetual Preferred Shares, $0.01 par value per share, liquidation preference $25.00 per share (the “Series C Preferred Shares”) and up to 100,000 shares of 8.00% Series D Cumulative Redeemable Perpetual Preferred Shares, $0.01 par value per share, liquidation preference $25.00 per share (the “Series D Preferred Shares”). As of the date hereof, the Company has outstanding 2,300,000 shares of Series C Preferred Shares and 3,200,000 shares of Series D Preferred Shares.
    The program does not obligate the Company to purchase shares of the Company’s common stock or preferred stock and the program may be modified or terminated at any time without prior notice. Any such purchases will be made in the open market in compliance with applicable laws and regulations, and purchases of the Company’s common stock on the open market will be conducted within the safe harbor provisions of Regulation 10b-18 under the Securities Exchange Act of 1934, as amended. The purchases will be funded using the Company’s existing cash resources.

    1. Wonderful news about Safe Bulkers, Fabrib. I have been buying those two all the way down with a steady hand SB.PC and SB.PD.

      Together with GLOG.PA and GLOP.PC etc

      1. Ethan – have you seen any info on Glog/Glop long term charters being in jeopardy? Can’t find any info and although that would be highly unusual these are highly unusual times. I’m not brave enough to add shares here but am not selling either. Preserving cash for when people start getting hit with 24/7 news about number of new Covid cases which are already in the pipeline so to speak..

      2. Fabric, thanks for the great news on Safe Bulkers, Inc. SB C and D have been and remains my ‘largest’ (cost basis) positions primarily due the super Honest and honorable of the two Greek brothers, who have at least 20+% stake in commons and preferreds. Years ago, they used their own private company to buy the new ships and then lease it back to avoid suspension of the dividends to the preferreds, ignoring some American hedge fund manager who urged the owners to do just that making the common price to go up. It still does not yet give dividend to the commons as of last Q. Due to the Covid 19 plus trade war, it is getting headwinds. I will not add or sell. I have tons of GLOP-A, B and C. Again getting headwinds from drastic decrease in demand, GLOG and GLOP had to issue more preferreds in order to sustain.

  18. I agree mortgage reit preferreds seem to be over sold. Utilities preferred yesterday were too low intra day. I bought CMCS for 23.2. Then saw it in the 18s. Wow.

    Mtg reits preferred look interesting.

    Dave M.

    1. Left a comment yesterday that I was buying NLY, NRZ, AGNC preferreds. Picked up 8,300 shares combined of the three. Probably never again will I be able to buy NRZ-PB at $6.78 (14.37 today), NLY-PB at $8.98 (14.37 today) or AGNCO at $9.86 (17.07 today).

      UBS had to liquidate MORL and MRLL preferred share ETNS. Large quantity of preferred shares went on the market all at once. I didn’t know that when it was happening, wish I did, I would have bought a lot more.

      1. ETF’s hold assets and ETN’s do not. The UBS ETN’s do not hold any assets for the index they track so it was something else.

        1. While that is technically true, the issuer hedges out their risk to the underlying via swaps etc which eventually translates to the swap counterparty liquidating assets

    2. Me too. Nonetheless, I still try to do some trading. Sold my PRIF-F at severe net loss of $16.07 and bought 200 shares AQNA at $19.22 keeping remaining cash in preparation for property taxes. I also sold my legacy CLNY-G at loss of course and trying to buy AFC, a perpetual callable for a long time at $18.32 last trade price good till cancelled. What a pain dealing with Fidelity. I called them twice waiting for 35 minutes each time, because the silly back room person refuse to let anyone to do a buy order. In the meantime, AQNA went down after I cancelled waiting to be filled. So, I quickly got it filled at Schwab. and now waiting for the AFC. AFC is BBB- by Moody, perpetual 6.875% issued by ARCC, before the crash deemed as the best of all BDC’s. ARCC survived the 2008 Great Recession by reducing the dividends but was quick on its recovery along with MAIN (most respected but overvalued deemed by Scott Kennedy of SA, the best of BDC’s IMHO. Of course, any of these can get cheaper down the road, the headwinds are far from resolved.

  19. I am very happy to have found this site a while back. Even though my portfolio is now down 36%, not from it’s high but in the red, I am not in panic mode as I am confident most of my issues will return to reasonable levels. I am systematically buying “new to me issues” and increasing my holdings in issues I already own, lately 50-100 shares at a time. Mainly have focused on the utilities, but I picked up another 50 shares of MFA-C yesterday at 5.90. may have been a mistake but what’s another $295.

    1. C Malcolm—sorry to hear you are off a bunch–I guess we are all in the same boat. I am nibbling all over–and will likely continue. Hang in there.

      1. Thank you! Had I not started moving out of most of my common stock and into preferred and baby bonds when I did I would be in worse shape. Unfortunately I didn’t unload all my energy commons. I’m not overly concerned. Adding a little here and there and averaging down.
        I appreciate the hard work you do to make this site what it is.

  20. Thinking about trading some of the “safer” preferreds at $20 for REIT preferreds at $10. Don’t really want to sell at that price but it looks like a good gamblers play (Spoiler: I’m not a gambler). I swapped a couple risky issues for safer issues a couple months ago, so I tell myself this is the payoff.

    1. Martin–you may not be a gambler, but you are a lot swifter on the move than most of us.

      1. Tim, as you suspected, Sotherly has announced suspension of all dividends to the commons and preferreds. I hope it might recover in a year or so. Maiden Holdings missed earnings (or more loss). I may consider selling my 200 shares of its bond, actually not behaving so bad probably because it is not so “popular” just like Amtrust preferreds and baby bonds. Ally bank has just reduced its savings (allow 6 times withdrawal now with no excess withdrawal penalty or overdraft for the next 120 days.

        1. Tim,
          In contrast to Sotherly which were always a dicey leveraged hotel, PEB declares 1 cent dividend to its commons. PEB-E should continue to pay dividend. Quality matters. Thanks to you, it could be traded perhaps with some other reasonably safe positions. I picked up some HGH, parent perhaps unloved but decent IG rated note. Overall, today is good for us income investors, compared to prior sessions.

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