Probably No Buying This Week for Us

This selloff has been deeper and longer (in terms of the number of days) than I could have/would have thought it would be–that is obvious as I wouldn’t be holding a full position in GasLog Partners preferred (GLOP-C) if I would have known a downdraft was coming.  While we have 7-8 perpetual preferreds they remain a small portion of our holdings–maybe 10%.

The good thing is that most of our holdings remain in short duration term preferreds, with a good chunk remaining in cash type investments (money markets) although term preferreds have begun to take ‘hits’ as well.  Even the Kayne Anderson 3.50% term preferred (KYN-F) is trading under $25 at $24.86–we hold a massive number of shares in KYN-F, which will be redeemed 4/2020.

3 of our 4 investment accounts are now in the red–one is off 2%, and 2 others are off about 1%–we have 1 account which is up about 1%–disappointing, but not disastrous.

This is a good time (actually it was a good time a few weeks ago) for income investors to take inventory of their risk tolerance in these markets–as well as goals and needs.  If you are a newer preferred stock or baby bond investor you likely have lost a chunk of money and as Bill Clinton said “I feel your pain”–we have all been there.  Evaluate your needs in terms of returns, income etc. and invest accordingly.  If you lay awake nights you need to lighten up a bit–at least now we have money market funds paying 2.25% (heading to 2.50%)-these options weren’t available 2 years ago when we had money markets paying .01%.

Our plan now is to hold what we have and probably NOT add anything new this week.  We have our eyes on a number of issues in which we have begun some starter positions that we would like to add to, but we really need a bit of stability to add further–these issues are from CHS and American Homes 4 Rent issues (decent quality in mid 7% current yields) as well as some of the AAA rated AllianzGI issues for their safety–remember that in a rising rate environment these ultra safe issues will get hammered lower–but you will have the safety (from bankruptcy etc.) and income stream–this means you need to understand you ability to have net asset value erosion while maintaining an income stream.

30 thoughts on “Probably No Buying This Week for Us”

  1. I will stay on the sidelines, probably for months.

    In Feb 2018, 90 LIBOR was 1.79%. 4 rate hikes and 90 day LIBOR responded properly : today is at 2.82%.

    The 10 year TBILL on 2/1/18 was 2.79%. Today it is at 2.76%. Yes – it’s down despite the 4 rate hikes.

    When either the 90 day LIBOR drops or the 10 year yield rises that will tell me the markets have returned to normal. Does that mean the 100 basis point spread we had in Feb 2018? No, but 50 basis points would be a good start

  2. Some of the yields I am seeing out there are astounding especially on the common dividend stocks that have taken a beating. This may be an unexpected generational buying opportunity, and I may start buying some of the term preferred issues except for that inevitable question. Is this going to precipitate a recession? I was in the interior design industry in Florida ten years ago, and watched my rich clients stop investing in home remodels because of stock market losses, then everything went to hell. At this rate, the Dow Jones could be down another 5000 points in a matter of weeks. Not sure even the best term preferred issues can stay afloat under those conditions. So when does it really make sense to buy in a market like this?

  3. A lot of things to think about. Here is one more. Looking at this:

    http://www.multpl.com/

    we see that the S&P 500 PE is estimated today to be at 18.14 which is still a little above its historical norm. It could be that the market is just going back to where it should be.

    1. xwords59–yes you could be correct as the pricing was kind of high looking forward into a potential softening of the economy. Unfortunately it has taken us income folks with it.

      1. Unless there is a major, multi-year recession or the current administration commits some type of irreversible blunder, we are all probably going to be OK if you don’t sell into the panic. Everyone’s interest and dividends should continue to get paid, and whatever cash you have or receive can be invested at much higher yields than even a few weeks ago.

        Has anyone seen any preferred dividends suspended as of today?

        1. Hello xwords
          Gst-B suspended their div twice and has now gone BK. Maiden Holdings recently suspended the divs of the common and 3 preferreds. NM suspended the divs on 2 of their preferreds in Feb, 2016.

          1. And the price always takes a whallop before you find a sniff of what is going on…Look at Wheeler preferreds last week when they suspended…Yes it was doing poorly but still dropped 50% again before one could do anything about it. Stick with quality at a good price point and this is one of the few varibles one can control…Getting paid and not getting screwed over by management.

          2. I cannot find anything on suspended dividends for Maiden Holdings preferreds. Can you tell me where you are seeing that? Quantum Online does not have it.

  4. Tim, any chance you would do a listing of investment grade preferred’s like you did in the old publication.

    Thanks,
    Jeff

  5. Tim, I am relatively new to your site and am learning from your commentary and the comments from others. Just wanted to say thanks and Merry Christmas!

  6. Signing off all week with an alt lead for research: FFXDF
    Canadian, long and interesting history worth a read on their site, royalties, 15% div withholding by Canada, monthly payer, cratered and ignored, pushing 8% yield, no debt, no prefs and none intended, very few employees, very long lived assets and very high quality partners…I usually do not disclose positions unless I own but have bot in here, prob over my % limit. Canadian Oil is not dead.
    I do remember when the Canadian Pension System had considered buying them out in toto, so seen as a conservative and ‘pension worthy’ consideration. Happy Boxing Day!

  7. Nobody has a crystal ball and hindsight is always 20/20. To me, there are 3 factors affecting share prices: 1) company financials, 2) market psychology, and 3 ) managerial competence. We can study fins for an evaluation of the company. We can ride the up and down tides of market psychology, making appropriate trades. However, we have no way of evaluating managerial competence until after-the-fact. I ignore market falls if the fins are OK. Loss due to incompetent mgt. is like a bad sunburn. It burns all the time and there is nothing I can do about it. Even more galling is that mgt. often gets away with their malfeasance, even getting a bonus for “guiding” their company back to sunlight while stepping over the battered bodies of us. I am de-risking this coming year.

  8. Tim, would consider doing a listing of the investment grade preferred’s like you did in the old publication?
    Thanks

  9. This looks like a re-pricing of all US financial assets which cannot be explained by voicing the market’s opinion of Jerome Powell’s decision last week. We probably won’t know for awhile how much “wealth effect” has been taken from us for quite some time. Next spring for the prime real estate season will be a good indicator.

  10. Agree, this sell-off is deep and long. With the drop in prices and increase in the return on those dividends, how low can they go? I think they may go low, and the real question is how strong are those companies, can they pay that dividend (be it common or Preferred stock) when the economy slows. It will be all about FCF, do they have it or are they sunk?

  11. I always like veteran preferreds because they put in terms the perspective of how good a relative deal is or not. Take CHSCO which was issued a par in 2013 with a ~2.80% 10 year….Now with 10 year right about there at 2.76% and CHSCO trading at 25.14 as I type…Does this represent real value? Or does it represent repricing to where it should be as a proper base line price?

    1. Hey Grid, Looks like AILNP posted a trade today at $120.00, first trade since 2017. Merry Christmas to someone…you or someone you know!

    2. I like your reasoning Grid. I’m thinking about AGO.B, thanks for that example. Remember that CHS looked a lot more solid in 13 than in 18 though. Makes it riskier today I would think.

      1. I would agree, P…I was keeping that out just looking at yield and price only. But 100% agree with you. And if one wanted to factor that in a further repricing could be in order.
        Joel, I am not seeing the trade there…In fact that last $129 price was me selling the rest I had…That was some easy money flips for 20% plus profits holding a short time. I think now is to search for quality under par ins trad of over par…I bought everything over par the past three years with other factors in mind too. And it has paid off in spades for now as I am holding up strong. The question becomes at what point does one roll these trades and go committed to the price trashed quality issues?

        1. “I’d like to fire the Fed” and “called the big banks over the weekend and they told me they have money” and “putting together the panic plunge team” and I could go on and on. I don’t think that stuff is helping. We used to call it dumb, now we call it poor optics. Did get a starter AGO-B this morning 24.80

    3. Grid–The ‘repricing’ is a valid question and one which a number of folks posted on over the weekend. I think some repricing is going on, but on the issues with reasonable coupons and quality I think there are ‘values’.

      If I was guessing now I think it is likely that the hated Spark Energy and some of the shippers are ‘repricing’ and won’t see $25 again in a very long time (if ever). I am personally fine with that—as long as the don’t reprice to $10/share.

      1. Tim it appears based on my holdings and the very narrow interest level I will ever consider, that ~ 6% quality ute preferreds have more than held their own. IE, the CNTHP, CNLPL, AILLL, HE-Us of the world. I bought 200 more at 21.73 today after buying 400 Friday at 21.83. Not quite 6% but am worried it may not get there. It actually closed up today at $22.30 into a bad day….Tommorrow who knows, but I would personally like a shot at under $21 to add.

          1. IPL-D up almost a dollar since I bought Friday and Monday…A perfect example of one can trade lower yielders for quick gains just as easily as trading high yield crap. Yet, I will resist and hold. Not because I think its going higher, but making sure I stick to quality with my issues. Would love for it to reverse back to $21 and buy more. Plus I have a lot of short term cap gains I have to pay this year, and dont wont any more.

      2. Hi Tim, thank you for the voice of sanity in this armageddon-like frenzy.

        I keep seeing comments relating to some prefs issued when 10-yr rates were at some-level and honestly I can’t figure how to figure this in my analysis. In the spirit of educating us FI newbies it would be great if you could write a post elaborating more on asset repricing and how it specifically affects preferred issues.

        Merry Christmas to you and all readers. May the spirit of the holidays prevail over the grinchs!

  12. Looks like the guillotine is still in the public square and active this morning! Some IG bonds down a solid dollar at the open!

    1. I just noticed a ute baby bond Baa2 that was $28.50 (6% par) as recently as 2 years ago down to $23.85 Tuesday….I have been on a bear hunt for years after this one…Steady , steady wait a bit more until I see the whites in its eyes, and then fire!

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