Monday Morning Kickoff

Here we go!! Another week of excitement and fear and greed.

Last week the S&P500 fell off the tiniest of amounts as it opened the week at 2854 with a weekly low of 2852 and a weekly high of 2954–closing the week at 2831 which is a loss of 6 S&P points from the Friday before.

The 10 year treasury traded in a range of .58% to .66% closing the week at .64%.

The Fed Balance Sheet grew last week by $82 billion – a meager rise (on a relative basis). The Fed Balance Sheet now stands at $6.656 trillion – likely on the way to $8-$10 billion before the year is out and higher in subsequent years.

The average $25/share preferred stock and baby bond was up last week by about 2%–a healthy gain. Investment grade issues were up by 1%, while banks were up 1.5% and even Lodging REITs up almost 2%. For the time being bargains have become relatively more difficult to nail down.

We enter the week with the equity futures off 1%. Last week equities were off a very minor amount and the previous week was off about 1.3%. I suspect we may be off another percent this week—a near perfect move lower–no panic. Off course the moves lower have not been helpful to preferreds and baby bonds as they have been much stronger than common shares.

We will have a number of employment numbers this week–given that terrible numbers are expected I don’t see the confirmation of bad unemployment being meaningful to markets. The more important numbers will be in a couple months–how fast employment improves from the bottom which may be April employment. We’ll see!

28 thoughts on “Monday Morning Kickoff”

  1. I own Drive Shack preferred and have not seen anything regarding it. I have gotten dividends on Oct and also Jan. I didn’t see anything at the end of April. Is this dividend being postponed ? I can’t find any info on it.

      1. Thanks Dave. I’m not too optimistic about them as they are in a high discretionary business.I saw that they actually got a bit of money from the PPP. I assumed they would have made at least an announcement that dividends were going to be delayed, but oh well.

  2. I bought a few CEFs last year. Now i”m building a time machine to go back before I did that. Big regrets on those moves.

    1. Franklin, please let me know when you get your time machine running, I’ll go with you to no CEF land. 😉

  3. A guru from Morgan Stanley on CNBC right now saying that states are going to have a shortfall of somewhere between $180 Billion and $375 Billion over the next year or so. So what happens with these guys??? Has anyone noticed this thing is like a giant snowball coming down a mountain. Everytime you turn around somebody is coming up short of money. Iam starting to wonder where this thing is going???

    1. That’s why I have a large cash position. Too many people don’t foresee where this is headed. I have a number of friends who believe printing money and handing it out without doing anything is a solution to a seized up world.

    2. Chuck P–I have seen it coming. Let’s face it we have a ‘fake economy’ at this point in time. Folks not working are getting more unemployment benefit than they made when working. State and local government are not (at least much in Minnesota) making moves to cut expenses – they will though, when reality sets in.

      1. Hi Tim; Very nice to hear from you. I mean that!!!! One of your “Sock Drawer” holdings “IPLDP” is trading today as I type this at $25.64 which just proves to me that there are many many folks out there that do NOT know what they are doing. As you know Tim this issue is callable at anytime and it pays .3187 cents per quarter. So if they call this baby at that price the buyer is going to lose money. Just dumb what people do. On a totally different note one issue I do own and think presents a “Good Value” if you are willing to own a Mega Bank is “WFC+Q”. Its a 5.85% coupon and not callable until 9/15/2023. Its trading at $25.10 which atleast on the surface looks like a good value, especially if you don’t any of it at all. I own it plus all the other Huge Mega Banks. Hope everyone is well. I’m down to about 10% cash which is where I usually keep things anyway so not really going to do much buying unless something gets called away. That 40 year Boeing bond with a 5.93% coupon is now trading at 103.32. My Schwab Guru (LOL) explained to me that there are NOW alot of foreign entities coming in and buying these Corp. bonds because they now have negative interest rates in many other countries. I’m probably wrong but I sure don’t see interest rates rising anytime soon in this country. I reserve the right to be wrong. LOL

        1. Chuck P : Thanks for bringing WFC+Q to our attention, that is a good price. I bought a small position of 300 shares @ 25.08 near the close. I have been slowly accumulating investment grade banks and utes, anything near 6% and relatively safe works for me.

        2. WFC-Q only pays 5.85% until 9/15/23. After then it floats at a very low 309 basis points over Libor. Coupon could be 3.5% then if rates don’t rise. That is why it looks cheap.

          1. Arbguy : Yes, saw that, but 3.5% would pretty much be a “worse case” scenario. Not sure what yardstick will be used to replace LIBOR yet. I tend to trade floaters anyway rather than hold them, but if I held it a year or two and rates were going up I might keep it.

    3. Going down a rabbit hole is my guess……

      and then there is this:

      The Treasury Department said Monday it expects to borrow a record $3 trillion in the second quarter to pay for the coronavirus relief measures passed by Congress.

  4. Tim, as far as you know is GMLPP and HMLP-A still ex-div this week? I often miss the obvious, but I do not see them on the master ex-dividend list.
    Cumulative distributions of 8.75% per annum ($2.1875 per annum or $0.546875 per quarter) will be paid quarterly on 2/15, 5/15, 8/15 & 11/15 to holders of record that will be the fifth business day prior to the payment date (NOTE: the ex-dividend date is one business day prior to the record date).

    1. Yes–as someone mentioned they are 5/7. I update those sheets weekly and these folks never get their declaration done very early.

      1. Thanks Tim, I knew you updated the lists regularly but did not realize it depended on the declaration from the companies–cheers!

  5. Keep in mind most states have not opened up their unemployment to 1099 and GIG workers yet. Where I live in Ohio they are targeting Mid May to have the unemployment site ready to accept those claims.

  6. Tim, a comment on the chart included here. From research of CEFs over time, it seems to me there is a disconnect in their pricing. Most CEFs contain about a one third slug of Non IG andf NR issues AND use leverage. I would have expected them to go down alot more and in this environment. I would have guessed they would have been at the bottom of the chart. Sometimes I play this game with myself of ‘make a best guess now and see what the evidence shows’ (The Price is Right . PS My wife hates that when I do that). Alas, behavioral reasons may be the reason. Unless there is a very large discount in pricing / mark to market, I see the CEFs as herd-feed and broker fee. I have never really been able to jump in to any of these with faith, especially after examining their propensity to follow interest rates down, down, down with consistent, long term distribution cuts.
    Even the term dated issues have a goal which is going to be very difficult to achieve in my view. I know some of them are building cash and term study for that final year of distribution. ‘Interesting’ and could be “very interesting’ in this environment if the junk portion craters like on the chart. Maybe a large print promise with no recourse. A chart line for junk issues would show that I think (there is not one on the chart)?
    Now let’s compare that to the actions of the govt in the junk market and a motivation suddenly clarifies. The income/ cashflow circulation system is on life support.

    1. Joel A–the chart only shows the preferred stocks of the CEF issues–not the CEF itself. I don’t buy and wouldn’t buy the individual CEFs, but because of the requirement for asset coverage of 200% or more (or with debt 300%). The preferreds are rated higher than utilities–and are rock solid. I have always disliked the closed end fund arena–from a pure buy and hold investment perspective–but their senior securities are a different story if you can accept 4.75% to 6% dividends.

    2. And yes–the term dated CEFs are now very dicey–but I think priced that way–at 20-40% discounts from the target redemption price it allows for quite few defaults.

  7. Keep in mind the unemployment numbers don’t count those recent layoffs where they received severance, like me and my 6 employees. Although I don’t count anyway because I am officially retired but the rest are looking for jobs and can’t get unemployment until the severance runs out. It was generous so we were lucky but I wonder how many are unemployed but not included in the large numbers we are seeing.

    1. Kitti : Yes, the unemployment numbers are sketchy at best. On the other side of the coin are workers who have been called back to work but won’t go because they are getting more money on unemployment than they were working. Also there is a provision for self-employed people who did not pay into the state unemployment system to get unemployment benefits, those folks were never included in the unemployment numbers before. I seem to recall the Federal benefit of $600 a week will run out at the end of July. If that is not extended beyond July I would say the numbers from August onward might have some meaning. I am retiring at the end of this year, was hoping to get laid off, no such luck, we were declared “essential”, not eligible to work from home, oh and by the way , wear a mask when you come to work.

  8. Warren Buffet sold a bunch of stock and publicized it. A lot of people still follow the Oracle. As a short term trader I have to be aware of the silly things that move the daily market. New blurbs, bombastic quotes, one person’s opinion, etc.

    1. I read an article in Barrons this weekend about the bond prices of certain energy companies in this down turn. One interesting factoid presented was an Occidental Petroleum bond which currently has the same 8% yield that Buffet got on his ‘preferred’ OXY shares, but sits higher up in the capital stack.

      Not sure the bonds are available to retail customers, but the notion that you could get the same yield as Buffet with more protection for your principal made me smile.

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