Time to wrap this week up. It looks like the indexes are likely heading lower again today with the S&P500 futures down about 1% right now.
Yesterdays S&P tumble of 2.5% was quite brutal and it appears maybe for the 1st time investors are accepting that we are not at the end of the tightening cycle–or if we are we don’t really know it. At the same time interest rates are telling us a very, very soft economy is just ahead–the 10 year treasury is at 3.46% right now.
Well I continue to sit on my hands, although yesterday I started back on my due diligence of regional and community banks. I continue to hold fixed-to-floating shares (CUBI-F) in Customers Bancorp (CUBI) and some of their baby bonds (CUBB). This is a target rich environment for 7% yields. My hesitation is because I need to trim some other holdings to buy some of these issues—and each time I review the holdings I don’t find shares to sell.
Well I am off to drive over 50 miles of snow and ice here in Minnesota–as a youth this was no big deal–as a old codger I would rather stay in my office, but duty calls so I have to go.
Tough week for some of our children. I thought the Drive Shack preferred sell off would win the “Big loser of the week” award, but NO. Today, the Applied UV 10.5% coupon $25 par preferred, AUVIP, had a little tumble. On Wednesday (12/14), two days ago it closed @ 21.60. Today it closed @ 8.98 for a two day loss of 58.4%. I do not see any news that would account for this. They extended their revolver for two additional years last week, so you would have thought it would provide a little more runway. Don’t follow it so cannot explain this fall from grace. Who woulda thunk a 10.5% pref issued last year when others were going out @ 3.9% could run into trouble in 18 months?
We do not own it in any account nor have open buy/sell orders. Not luck that we did NOT own this one. . .
But wait there is MORE.
A Grid favorite, Dayton and Michigan Railroad, DMRRP, also stood out. It is really, really illiquid with a last trade before today on 11/9/21. Yes, that is 13 months ago. Back then it closed at 60.00 Today it traded a massive 278 shares @ 27.00 down -33.00 or -55.0%. At 27, it yields 14.8% and appears to still be paying. If so, this this is a strong candidate for “buy of the year.” Reasonable chance some III’er was this buyer. Was NOT us in any account.
Everything but a Popeil Pocket Fisherman this week. . .
DMRRP is expert right? So only mcg could be a buyer last i checked around these parts. I gave up watching a lot of these. I have a better chance of finding uncanceled paper stock certificates on ebay then I do buying on the expert market.
Yes, nobody can buy. The SEC killed basically a very high IG issue. Being it was issued in 1860s and the DMR (actually CSX now since they own the non functioning entity now) must sell the land it was bought with to make whole if they dont pay the dividend. Im going to go out on a limb and guess the land is worth more now, than it was when purchased well over a 150 years ago, lol.
While I am new to preferreds, as with any investment there is always behind the scenes fu**ery.
So either the company plans to file BK or their recent credit facility will allow them to buy these preferreds on the open
Market for pennies on the $
I assume in a BK scenario like $Ds their preferreds are essentially worthless? Can a company buy their own preferred back on the open market?
Afaik, nothing stops a company from purchasing its pfd shares on the open market (often referred to as an ATM (at-the-market) program). Would like to hear from more experienced hands on this.
Where do you guys find this stuff?
My PSAs must seen boring to you.
Fascinating
Find it? It has been trading since 1863! And has never missed a payment. Actually its genesis was converting bonds into preferred stock for the shareholders to avoid taxation. As back then there was no Federal income tax, and Ohio residents only paid taxes on bonds, not preferred stock. State of Ohio sued to collect but lost in the courts. Truly an antique and pays like clock work issue. But, ha, yes I totally get what you saying, but the SEC killed a Golden Goose. Way safer financially than even the rock solid payer PSA preferreds are.
Sorry for my ignorance Mr. Grid. Unlike you I wasn’t around when Lincoln
Was president. Ha, anyway I have learned a lot from you.
You know more about preferreds than anyone. I just buy the IG.
This market is really awful.
AUVIP- devil is in the details
The National Bureau of Economic Research (NBER) has the responsibility of determining when a recession begins and when it ends.
Maybe not yet- as far as ‘official’ – here’s a decent explanation:
https://www.learningmarkets.com/who-decides-when-we-are-in-a-recession/
Tim H
I looked at some data on yield inversion which suggests that inversion doesn’t narrow or reverse until rates fall. ?? A pause in rates doesn’t seem to cause much change to inversion. Do you agree that narrowing inversion is bad for FF’s and floaters?
See Lance Pan’s The Inverted Yield Curve: Historical Perspectives at Capital Advisors Group, dated at 3/1/06
https://schrts.co/mCgJNqBR
This chart is not updated but in general the fed follows the bond market and the 3 month. Fed fund futures can be helpful but I trust the bond market more. No easy answer on libor floaters. I do own some from AGNC – NLY – DX. I plan on buying a bond ETF next year when the fed pauses as I believe bonds have greater reward than stocks. I will still trade SSO & QLD tactically when they get oversold with positive divergences. My target for SPX IS 3400 – 3200. ATB
Bill Gross
@real_bill_gross
·2h
With 10 year treasuries below 3.5%, high-yielding stocks gain appeal. I like MTGE REITS and nat’l gas MLPs with dividends yielding 10-15%. MLPX, ET, AGNC, and NLY for example.
As the yield curve dis-inverts next year, the 10 year yield has more basis points to rise than either the 3 month or 2 year as the fed funds go to 5%+. Historically the current spread to fed funds rate is wider than expected and as the inversion reverses we are usually deep int a recession and the markets are going down. Be prepared. ATB
Stay warm Tim. I’m surprised you’re not a snowbird. Come on down to Texas.
TimH–will never leave here for more than a few weeks at a time – my wife would long for the grandkids (8 of them)–all within 40 miles of here. If it was up to me I would have been gone years ago.