Normalizing Markets? Moving Ahead

This is such a calm market today that one has to wonder about whether this is the calm before the storm.  I watch the news out of New York and shudder to think about a similar situation moving across the country.

Each day I see more and more layoffs and as we all know the median American has almost ZIP money in their emergency reserve–I feel fortunate to have months and months and months of $$$ in my cash reserves–I think I could get through 2020 without income–the result of having too much money in my checking accounts and having almost no debt.  I have to wonder what we are going to see on defaults on mortgages/rent, car payments and credit card debt.  Yes I guess the helicopter government money will tide folks over a bit–but not really for long a couple weeks–congress is already reloading the freebies.

Some businesses have seen decent business in the downturn–but I have to believe that folks ran up their credit cards to buy equipment for home schooling etc and that demand is going to fall flat in months ahead and those businesses are going to implode.

This week Friday we are going to have employment numbers for March and we already know they are going to be bad–but I believe the cutoff on the employment report is early in the month so next month will be disasterous.  I would post an economic calendar, but no use really as the forecasts and results are pretty useless for now.

So I hope to get back to normal on the website.  I have a lot of work to do to get caught up–ticker changes, suspended dividends etc. my time is very limited and these daily whipsaw markets have taken all my time.

I did buy some of the New Residential Investment 7.125% perpetual (NRZ-B) this morning–just a part position–no one should be buying full positions all at once–legging in remains a prudent act.  The company has declared their dividends today–whacking their common dividend, and it appears they are making moves to insure their viability.

I know folks have been talking about AATRL which is a 5.15% trust preferred from Affiliated Managers (AMG).  Right now this is a gift at $31/share (a $50 issue) –8.3% current yield.  The company has a $25 issue 5.875% debenture  (MGR) trading at $23.75–current yield of 6.05%.  I have just bought 100 shares of the $50 issue @$30.97.  I already owed 100 in my sock drawer.  Mark my word that this will trade much higher in the month or two ahead–folks are sleeping (except all our readers who have been right on it).

I see no significant difference in these 2 issues–the trust preferred was originally a private placement and both can defer interest payments for 20 quarters.

21 thoughts on “Normalizing Markets? Moving Ahead”

  1. With all the calls and early redemption of the preferreds, the number of debt issues maturing in 2020, 2021 or 2022 is a relative handful, instead of the 10-20 in most years, like TPVY and MCVD both of which are trading way under par. It seems like early redemptions are going to be on hold for a while, with just DXB coming up and the opportunistic tenders by issuers like Prospect.
    are there any other baby bonds that are maturing in 2020-2022 that I missed?

    1. Thanks for the 4 that I couldn’t remember.
      Those yields are killer with that discounted price.
      and for those that go bankrupt, I am thinking of the RAIT bonds that people made a killing off of because they were paid back in full, but were down around 10-15 dollars during their bankruptcy case.

      1. RAIT bonds are the exception imo based on all the bankruptcies I’ve seen. That being said, I’m in those and hoping they get paid out shortly.

        1. the RAIT bonds haven’t paid out yet, but hopefully they do soon. The plan was finally approved last week.

  2. Think this is a good place and time to post. As Tim pointed out really wonder about the next month or 2. I was waiting to buy a new or used truck, I had hoped for another market drop like we had in 08, when dealers and credit unions had great deals, but I didn’t wish for what is happening now. With 486,000 on my 21yr old Ford I need one.

  3. Tim,

    Thanks for addressing AATRL – many of us have expressed interest in this over the last few days. Thanks for the tidbit on the potential for deferred interest and the OID issue – I had heard about the OID issue but not the deferred interest provision. Your website and those that contribute in the comments are invaluable.

  4. Tim,
    First of all, thanks for this great site. I have just been watching for the last few weeks, and this is my first comment.
    With regard to AATRL, the last quote I saw was at $34. At this price, the YTM (2037) is about 8 3/4%. Obviously, not what it was at $31, but I don’t see where else you are going to get anything near that on an IG issue.
    A couple of caveats: As other have noted, there is some OID attached to this issue, so the pre-tax equivalent yield is lower for taxable accounts, and it’s best for retirement accounts. Also, I believe S&P downgraded it from BBB to BBB- last month.
    (Note: the ticker for Affiliated Managers is AMG.)
    Again, thanks for all your work and this superb site.

  5. Tim; Great commentary today and I feel its right on the money. It scares me quite alot about people not being able to pay their mortgage, car payments, and credit cards. There’s a “part” of me that says maybe we get thru painfully the next 3 or 4 months and with a little bit of good luck maybe many of these people can be called back to work and shoot for some semblance of “normalcy”. I have noticed that “many” of the preferreds that were “Super Bargains” a week ago and shot up in price quite alot. Most of the high quality preferreds that I bought a week ago at $22 to $23 are now in the $26 range. Iam not a trader/seller of these things but there are very few bargains left out there “once again”. I will list “some” of the preferreds left that I would still consider a bargain assuming they continue to pay their “Non-Cumulative” preferreds: EQH+A, IPLDP, MS+K, VOYA+B, and WFC+Q. Once again, when I think about mortgages and car payments and how little many people have in savings it really does scare the crap out of me. Iam fine and can survive very easily as I was blessed with a great job that I performed in for over 40+ years. Hope this finds everybody out there “SAFE, SOUND, & HEALTHY”. I just want to add one thing: Its not what you know that scares me, its what you don’t know that can be a nightmare. The Oil Patch is a perfect example. I wonder which companies make it and which ones go belly up??? I still own ETP+D and EPD.

  6. AATRL requires a call to the fixed income desk at Fidelity, but a guy there just told me they are planning to allow trades of convertible preferreds via the website soon. I hope he is right!

  7. Not very normal. The Fed has essentially nationalized the market. We are only one step away from being the next Japan where the fed will buy stock ETFs.

    Still, things are not as calm as they look on the surface:
    Credit Hedge Fund Suspends Redemptions in Sign of Market Stress
    https://www.wsj.com/articles/credit-hedge-fund-suspends-redemptions-in-sign-of-market-stress-11585660093
    S&P500 earnings estimates will get slashed so the market still is not cheap despite the drop.

  8. Tim,
    Thanks for the comments on AATRL. Seems too good to be true. Your validation makes me comfortable.
    I know this board is not so much into Bonds but wanted to share just two that I found compelling, bought these earlier today
    FORD 7.5% 8/1/26 CUSIP 345370BP4 current price $83.654 YTM 11.165%
    Yield on Cost = 8.97% very low risk IMO
    NuStar Logistics 6.75% 2/1/21 (10 months and 1 day away) CUSIP 67059TAD7
    current price $83.250 YTM 31.074% Yield on Cost = 8.11%
    Of course there is risk here but chance of bankruptcy within 10 months is very low IMO. Rated BB- / Ba2
    as always do your own diligence
    good luck to all with your choices

    1. Couple things I have heard, yesterday, Hawaii is now on tighter lock down. 14 day shelter in place if you fly in from anywhere including island hopping. There is a 5,000 fine and 5months in jail and people have been arrested and cited. My customers have laid off people including management. Trucking is still moving but worry about a breakdown in transportation. I am still working and plan to pay taxes today. San Francisco reported estimated loss off 285 million in sales tax last 3 months. This isn’t counting all that business has lost. Multiply that by San Diego, los Angeles, Portland, Seattle, Denver and eastwards and its in the billions

  9. I’m at 90% cash. I think we are at the start of a lost decade.

    The 10 year at .65% is certainly suggesting that, anyway

  10. I’m over 1/3rd cash now. Keeping 1/3rd in higher risk investments, mostly REIT preferreds, so I can make money trading them hopefully offsetting the price drops. The rest is in sock drawer, though even those aren’t looking too stable these days. Started selling a few of those in small amounts.

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