Nibbling Round the Edges

As the wide swings have been occurring in all marketplaces–stocks and bonds I have just nibbled here and there–not getting carried away.

I bought a position in the new First Citizens Bancshares 5.375% preferred (now trading on the OTC Grey market under FCIZP) for $25.17.

I added a little more VEREIT 6.70% perpetual (VER-F). This is a quality issue–although unrated and the company has been slowly calling the issue, but there remains 30 million shares outstanding. Shares are trading around $25.20. It is a monthly payor.

Now I sit back a wait some more.

The Fed balance sheet grew in the last week–by a massive $82 billion. While I didn’t dig in deep I believe that around $50-$55 billion of this was in the overnight repo market while around $30 billion was in QE (quantatative easing–market operations by the Fed in outright purchase of bill, bonds and mortgages).

Of course we all know the 10 year treasury is now trading at .72%–this makes me sick, as our job as income investors has become more more risky–i.e. we have to deploy cash–no more money market earnings to speak of.

So we slide into the weekend again without having any clue as to what we will face next week–no prediction can be reliable.

36 thoughts on “Nibbling Round the Edges”

  1. Hi Tim; I have a “suggestion” for you. Over on S.A. they have a way you can send a private message to the other posters. Is that something you would consider. There are times when it would be nice as sometimes a particular issue of interest comes up but you don’t really know if the party has even read the post. It would be handy as sometimes I would like to ask you something as well like a couple of days ago but you never replied to me.

    1. In my opinion, private message work well for skunking alpha because there is paid services, and revenue generation discussions, and you need validation of messages being you are a paying customer and in need of contact with the service provider. They also have disclaimers about recommendations, advice, and opinions. Giving out personal emails, cell phone #s, private messages can get dicey with an owner of a an investment site. There is no disclaimer, private messages could later be construed and be discovered against an owner of an investment site for stock promotion schemes, pump and dump, etc. If you need personal advice, it is probably best to reach out to licensed financial investment advisors.

      1. Mr. Lucky; Nope don’t need a financial investment advisor. Tried that about 40+ years ago and found out they didn’t even know half what I thought they did. LOL Sometimes a person will make a comment on something that leads to just another question and there is really no way here to exchange ideas without clogging up the site with a conversation that many aren’t interested in. Actually I find some of the writers on S.A. are pretty smart guys so your comment of “Skunking Alpha” I find a little snarky.

        1. Chuck, you have described what, for me, this site is all about: comments and discussions, i.e., exchanges of ideas.

          So, why don’t you just make your comments or questions public and see what happens? There are some “pretty smart guys” here, too.

          JMO

          1. Good morning Camroc; I hope this finds you doing well. I do make contributions here on preferreds that I think are still a good value. I did that about a week ago if memory serves me correct. BUT, sometimes you find someones comment on a preferred interesting but would like to have “further discussion” without taking up all of Tims space. Thats why I do indeed like the “Private Message” feature over on S.A. Not a big deal but there are times when you would like to have a conversation with someone. As an example over on S A I have 158 followers and sometimes someone will send me a message that requires quite a “Lengthy Answer”. Over there its more geared towards stock investors. I still own 4 individual stocks that I have done very deep research on and sometimes a simple answer is just not adequate. HOPE YOU HAVE A GREAT SUNDAY. PS I will just add that if I buy something I usually take a pretty large position including my 4 stocks. I find that huge diversification over time becomes huge De Worse a Fication. LOL You don’t have to own a hundred things to be successful.

    2. Chuck P–I will look into it. I have added features in the past–such as the edit function to comments (for a 5 minute period) which are not functions of WordPress, but fortunately I found an add-in function which was not too expensive to implement (all of the changes have to be done by Chad–who does the technical work).

      1. Tim; I have mentioned this twice before so this will be my 3rd and final time–LOL. I think that most of us here get alot of really good info out of your site. So I will be your cheerleader to tell you that I would not mind if you charged a nominal amount for a subscription. As an example for you I had never even heard of “IPLDP” until I got on your site. I did my due diligence and ended up buying 3,200 shares at $25.08. Even though its callable at anytime I figure I will still collect one coupon so it was a no brainer. Same goes for “FCIZP” which I really loaded up on after reading all the links and also talking to their treasurer at the company. Lots of info was available on that particular company but I had never even heard of them until I read it HERE. So again, I think if you were to charge a nominal amount most folks would understand that. Have a good Sunday Tim.

  2. I’ve been in shock since 10 year dropped below 0.70 and 30 year under 1.30 on Friday. Having quality equities washing out 4-5% per day for days in a row is draining liquidity in our market as traders race to get cash from anywhere to put into their main positions……And now NY desks are scared silly by covid19 and aren’t as focused on their positions as they should be.

    Munis are also rallying but still it’s silly. We use to get 90% of a Treasury on a muni. Now its 200% or more.

    1. Like a spark and gasoline. The 20+ yr Treasury ETF TLT is up 24% YTD. The ETF ZROZ 25+ yr Zero Treasury is up 36% YTD. I bought long TIPS auction about 6 months ago $113.65 now $139.58 up 23% with about 10% of that in just one week. Who would have ever thought this could happen?

  3. I did a bit more than nibbling. Picked up 5k shares of GBDC and 3.75k of ARCC. I feel good with both at NAV. If they fall to 5% below recent NAV I’ll buy more. Only got 121 of RlJ/A at my price, but hoping to get much more. Also had a GTC order on DCP hit.. total dumpster dive.

  4. The value trades are clearly in sectors I want no part of, ala, energy, travel and leisure, etc. I kind of used this time to prune a few things and holding issues I have no concern holding on pricing pressures. As Bob alluded to, I reentered the Canadian resets tepidly buying a position in Fairfax E. I did also hunker down into more “Uteville” this week buying the CU fixed EE series, and late today added to ETI-PR at $26.18 (goes exD later this month).
    I dont want to get too married to past call issues and suddenly look for lower yields when they are all redeemed. I like a mixture of things but lean quality in almost all issues I own now.

    1. I still like corr/pra which is now callable trading below 25 and paying 7.375%. I did not add to it because I have a full allocation.

      My preference is high quality in utility space. Hard to find at reasonable prices.

        1. No K1

          From their website

          “Investors receive a tax Form 1099 and suffer no unrelated business taxable income (UBTI).”

    2. Bought the barbell today. IPLDP & CL&P pfds on one end, ET & EPD (at 8%!) on the other. Would love for EPD to hit $17.80 next week in a panic. That would be a 10% growing yield on that sweetie.

      Don’t want to wish ill on the world, but if we’re gonna be stupid about this, I wanna take full advantage & lock in those solid payers. Shades of 2008. You don’t get too many opportunities in this life. Gotta hear ’em when they knock.

      JMO

        1. Welcome Philp!
          Nice to see you stopped by from SA. CL & P is Connecticut Light and Power
          Lot of outstanding pfd’s kind of like SCE trust preferred’s lot of debt issued but its covered.

          1. Charles, You really cant compare the CLP preferreds to SCE preferreds. The SCE compose some serious market cap in totality. The CLP preferreds dont even register as a blip on cap stack. While the SCE preferreds represent over a billion and a half of obligation, the Connecticut Light entire issuances dont even comprise $85 million in issuance or a mere $5 million or so annually in payment obligation.

            1. I think the only reason why things like IPLDP preferred is around, might be because that the preferreds are so tiny, that they don’t see them on the 10-k. They are buried so deep, that only the intern accountants that got the #’s rolled them up, and the CFO doesnt know they are there. Yeah, SCE and Alliant are not comparable.

              1. Mr. Lucky, the comparison was to SCE and Connecticut Power and Light, not Interstate Power and Light. IPLDP (Interstate Power) is actually a minor but fair sized issue of $200 million. The entire Connecticut Light series of preferreds are under $100 million combined. Alliant has been the hold co for IPL for many decades and approved this 2013 issuance.
                The CPL issues were issued long ago when Connecticut Light was actually its own company with its own common stock ticker.
                SCE though does make an apparent effort to have preferreds as part of their cap stack, unlike IPL which seems a one off series. Kind of like the new Entergy Texas preferred issued last year. A one off issuance of only $35 million. Very tiny and doesnt seem relevant considering Entergy has directed all other subsidiary preferreds to be redeemed over the years.

          2. Hi Charles N.
            I visit this site every day. I try not to comment, because my portfolio is quite a bit different than others on this site and often I find out I have misunderstood the conversation, or it is too complex for me to spend hours to decipher, such as Unit preferreds.
            Sometimes I ask ‘Gridbird’ for explanations, on another site and of course he is always helpful, as I ‘knew him’ before this site existed. I actually own CL&P preferreds but did not recognize the product from those letters. I wish every time a symbol is noted that it was accompanied by the name of the corp. so as to make it clear what is being discussed. Remember brokers and financial sites ofter have different symbols for the same product, and in this case, you were just using an abbreviation that eluded me.
            I use various sites to research preferred issues and the more I visited here, the more I converted my portfolio to preferred issues.
            I like Canadian preferreds but have a heck of a time trying to match the OTC symbols to the
            TSX symbols to my brokers symbols. I have tried the sortable sheet which is of help, but I don’t want to make purchases unless I understand exactly what I am buying. I find it interesting that certain brokers will not allow certain trading of OTC stocks. I use TDA and never have any problem. *Obviously other brokers treat you like ‘babies’ that have little knowledge, when the exact opposite is true’. I have never had a negative discussion with tDa over decades of my account being there. Lastly, thank you for clarifying your abbreviation.
            howard

            1. Howard, I have TD also. The Ying and the Yang are going to collide when they integrate. TD does everything correct from my perspective on the issues I have. Schwab seems like a train wreck in my area. I hope TD “teaches Schwab” instead of the other way around, or I will be complaining along with others who are having problems.

              1. Hi Gridbird
                The good thing is that by using this site we can ask which broker does satisfy the needs of those that trade OTC, and if necessary, open an acct at a broker they suggest, at least just for those type of trades. I have never read the broker section on the right hand pane, so it’s time to start as the case in point may already be answered. The bad thing is that Schwab is the buyer of TDA, as best I understand. Be good.

    3. Grid, You might be making the right call on energy, travel and leisure though I have a weakness for a value trade and have been slowly (slowly) expanding into RLJ-A, XOM and today sold puts on DAL at 40. Still minor positions but willing to sit on them if need be.

      Like you I’ve gone deeper into CN fixed (CU and SLF) over the last quarter, more so after dropping the resets (primarily EBGEF) in January. Accumulation of past-call issues (including recent adds AEB, CNLHP, more IPLDP) is increasing risk of too much cash if redemptions materialize – a value trap of sorts. During recent volatility balanced with a few higher IG issues at 5%+ YTCs like PSA-H and CKNQP.

      Leaning into longer call dates currently averaged at 10/2024 (excluding RLJ-A) as it’s difficult to envision rates rising in the next 2-3 years. Really not enjoying the current slide.

      1. Alpha, I agree totally its just the fear of the unknown that forces me to stay out of the blatant “sin bin” issues. You know if IPLDP collapsed one day to $22 in a market rout, you would load up to the absolute max.
        When issues like energy or hospitality happen, you have to hope its just a cork under water waiting to pop back… Or know your numbers, access to cash, revolvers, cap stacks, projections, survivability to outlast the problem, etc.
        Many times in fact the majority its a cork that pops back above water. But other times it doesnt. And the market gets ya every time on them. I see it over and over….The dividend or interest payment stays safe while the price keeps dropping. But then suddenly the dividend isnt safe but the price has dropped already in anticipation long ago back when dividend was still “safe”. So you cant get out without incurring a big loss either way.
        This happens all the time. So these arent layup trades by any means despite the rewards laying there. But they certainly provide opportunity.

  5. Almost everything I have bought recently has been a past call issue sort of, more or less, pinned to par, from quality issuers.

    They are going to get called at some point. Then I will replace them with other past call issues at lower yields. Or maybe some Canadians. Will perhaps post in the Canadian section this weekend but many of the resets and floaters are trading at or close to 10-year lows.

    Pass the Prozac, please.

    PS – sold all my shares of STT-C right after the Ex date for 25.00+. Someone will hold them for 2 weeks at a de-facto negative yield.

    1. I was pleased to get a 50% position in bep/pra at par. Since it trades in US, no canadian withholding. Since it has no UBTI, went into IRA. No k1 issues.

      Also got a 50% position in new First Citizen issue.

      Other than those, same as you. When you are done with the prozac, pass it along.

      Apparently I am using the same strategy as you are. Waiting on Canadian issues until the market stabilizes.

      1. Steve – BEP is an interesting beast. Brookfield structured it as a Bermudian partnership to avoid the Canadian withholding issue. The common units are listed on the NYSE and there are quite a few preferred listed on the TSX, some of which have US OTC symbols. The TSX listed issues are CA$-denominated and trade at generous yields.

        1. I wanted to buy BRENF fixed rate minimum reset. But since it trades on TSX, that means canadian withholding. So I do not want it in my IRA. If I do not hold in an IRA then I have to deal with K1.

          Bep/pra let’s me avoid the canadian withholding taxes which makes an IRA a great choice especially since their K1 income does not have UBTI income. K1 in IRA’s without UBTI are totally tax free and ignored by Turbo Tax. I am sure you know that but perhaps others do not.

          I believe every other option you mention has both canadian withholding and K1 Tax reporting complications. So for me bep/pra is perfect (and right now) the only way for me to own Bep.

          Note one of my other favorites, which unlike bep/pra, is still on sale is Corr/pra at about 24.21. It is also in my IRA and avoids K1 income.

          “REIT pioneer, CorEnergy Infrastructure Trust, Inc. (NYSE: CORR, CORRPrA), is the first publicly listed real estate investment trust (REIT) focused on energy infrastructure. The company owns critical assets leased to energy operators under long-term triple-net participating leases.

          CorEnergy provides investors liquidity and uncomplicated direct access to U.S. infrastructure. Investors receive a tax Form 1099 and suffer no unrelated business taxable income (UBTI).”

          In the last annual earnings presentation CORR did not talk about calling this. It became callable in Feb 2020. In the prior earnings presentation they directly talked about tactical opportunities to reduce this expense.

          1. Steve – BRENF, aka BEP.PR.G, is issued by a Bermudian partnership. Exactly the same partnership that issued BEP-A.

            Where an issue is LISTED has nothing to do with withholding. It’s a matter of domicile of the issuer. Bermudian partnerships do not withhold taxes no matter where the issue in question is listed.

            In the case of EITHER BRENF or BEP-A, you will get a K-1. I promise you. Getting the K-1 does not determine the issue’s tax status. What determines the tax status is 1) whether the issue in question is a common unit or a preferred unit, and 2) what kind of account you have it parked in (qualified or not). The tax treatment of BRENF and BEP-A is the same.

            That said, there are differences between the two issues. BRENF is CA$, BEP-A is US$. The former is a reset with a min coupon of 5.5% callable in less than a year, the latter is a straight fixed callable only in 2025. BRENF is priced to yield 5.55%. BEP-A is at 5.18% nominal yield and 4.95% YTC.

            BRENF is the better issue, which is why I own about several thousand shares in a Roth. I don’t own BEP-A. But BRENF is CA$ and is callable in about a year. Your risk on the issue is having an unhedged short term position in the CA$. Personally, as a US domicile, I would not do that unless I was hedged on CA$. If the CA$ drops 10% in the next year, and the issue is called, you are pouched.

            If you’re willing and able to hedge I like BRENF; otherwise BEP-A. If BRENF is not called in a year, it isn’t callable for another 5 years and you can drop the currency hedge.

            1. Wow. Thanks. This is news to me. I assumed the prospectus was similar to other canadian preferreds that the offering was intended to trade in Canada not the US. I assumed where the issue was offered for sale determined tax liability not the country of origin.

              I will buy a few shares for my IRA. You are a highly trusted resource. Alas, Schwab is not. I will reconfirm after I recieve a payment that no withholding occurred in an IRA at schwab to let everybody know.

              I may be willing to do 50 50 split on BEP and take some canadian currency risk. I believe long term, the dollar will weaken.

              1. Steve – Just be sure that you aren’t being withheld, so check the first dividend payment when it hits. The next payment date is April 30.

                Some brokers require that you fill out a form to avoid withholding.

  6. Considering the current yields of bonds and bills if a new QE round starts it will include stocks and corporate bonds.

    1. Martin G–I am sure you are exhausted with all the monitoring you do–have a good weekend and see you Monday.

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