Red Everywhere You Look

Look like a lot of folks bailing out today—not only of common stocks but income issues as well.

Seldom do we see such widespread selling–everywhere you look. Preferreds and baby bonds are off 1%–this on the back of interest rates moving a few basis points higher. It doesn’t not appear that the move is really on concerns of current interest rates–but maybe an anticipation of continued inflation prompting a move by the Fed in the next couple of months.

There is quite a bit of blabbing going on about either inflation or what some consider to be irresponsible Fed policy (too loose).

I am watching closely–on this page you can ‘toggle’ to ‘losers’ and you will see how losers are totally overwhelming gainers today–a sea of red.

32 thoughts on “Red Everywhere You Look”

  1. FFC was down over 4% earlier today and FLC down too. Have liked and owned these before but recently sold out as they got costly – over 8-10% premium to NAV.

    Anyone know why? Is this Flah&Crum specific or start of something?

      1. And it’s going to keep going down. The YTW is considerably lower than what they are paying out now. The portfolio is loaded with 1-2% YTC issues.

  2. The quote service powering the pfd stock by alpha/losers page is not loading, same yesterday until late in the day??????? Bea

  3. Couple more days like this and you might actually be able to buy something again.

  4. With PFF down 80 bps, I was expecting some more individual preferreds to be down 1-1.5% but didn’t see those opportunities today. I was closely monitoring the linked sheet but disappointed by the lack of opportunities.

    1. Landlord, I show roughly 86 preferreds/babys that were down 1% or more. I excluded a few that I think have suspended payouts. Here are twenty that are down the most. This includes $10, $25, $50 and $100 issues and some of them might be ex-dividend but I did not check.

      AFFS -4.1%
      AGRIP -3.0%
      NGL-PC -2.6%
      GFLU -2.5%
      GMLPP -2.5%
      INN-PE -2.2%
      CETXP -2.1%
      APTV-PA -2.1%
      KKR-PC -2.1%
      AFSIN -2.0%
      PBY -2.0%
      ALIN-PA -2.0%
      FBPRO -1.9%
      HAWEL -1.9%
      MNSBP -1.8%
      FHN-PE -1.8%
      IFFT -1.8%
      NYMTM -1.7%
      CNP-PB -1.7%
      CDR-PB -1.6%

      1. Tex, a lot of the ones you listed are special situations (ALIN, GMLPP, AFFS/AFSIN), distressed (NGL), recent low coupon (KKR), or serious call risk (PBY). Then you’ve got some illiquids and junk small caps in there.

        The only good pullback from that list was NYMTM which I added a tad of at 24.26 but you could buy that like a week ago at that price. On a big down day like this, I’d have expected to see a lot more like that.

        1. Landlord, I reran the numbers using the low of the day instead of the close. It increased the number of issues from 86 to 228. So a lot more issues did have at least a small spike down, even if it did not close at the low for the day. For example FPI-B had a low of 25.55 but closed @ 26.08, so there were some attractive buy prices during the day. Here are the largest losers based on today’s low compared to yesterdays close:

          BMYMP -6.28%
          GNL-PA -5.21%
          AFFS -4.09%
          SABRP -4.00%
          APTV-PA -3.97%
          EQC-PD -3.24%
          INN-PE -3.11%
          AGRIP -3.01%
          BHR-PB -2.79%
          GFLU -2.73%
          IFFT -2.69%
          AESC -2.62%
          SCCC -2.53%
          KKR-PC -2.50%
          GMLPP -2.49%
          AEL-PA -2.49%
          SPLP-PA -2.22%
          FPI-PB -2.18%
          BDXB -2.11%
          ALIN-PA -2.11%
          NEE-PP -2.09%
          SCE-PH -2.07%
          CNP-PB -2.07%
          NEE-PQ -2.06%
          SCE-PJ -2.00%

          1. I’ll agree there were some values at the lows of the day that I missed. Would have wanted to add to my GLP-B at 25.70. But your revised list still doesn’t have many good values. A lot of those big losses are from recent unexplainable spikes higher like SCCC. That’s more like profit taking action than the sort of panicky behavior preferred holders are known for that create good opportunities. No wiff of panic despite VIX going over 20.

    2. Yep, Landlord it was largely a nothing burger today. My Yahoo spreadsheet shows me down 0.04% today. My biggest loser was GMLPP but I have less than 300 shares. Well, I did and bought 100 more on sell off.
      Of course with my 2 biggest issues being anchored DTJ and WTREP (and a host of non trading illiquids) nothing much will happen. I did jump in and bought 800 shares of FPI-B at $25.95. Sold a bunch off in $26.20s a week or two ago and a few other minor tweaks.

        1. Landlord, I dunno. Im in Karma’s camp here. Just slowly adding and watching. I keep reminding myself this isnt an LNG shipper but part of a bigger and presumably better investment opportunity in the high yield risk bucket arena.

          1. I’m curious why you say this is no longer an LNG shipper? They are leaving the preferred outstanding but is there any indication that GMLP will be merged into the new parent or that the preferred becomes an obligation of NFE? The delisting press release says they will no longer file financials for GMLP, which implies GMLP will exist as a subsidiary of NFE. So, looks to me like the preferred is not an obligation of NFE, but will remain solely an obligation of GMLP. I would be concerned about not seeing financials for GMLP ever again (similar to the situation with SLMNP although I think LYB is trustworthy AND note that LYB’s debt is corporate level not at the sub). What’s the risk of Wes Edens stripping GMLP of assets and eventually stop paying the GMLP preferred? Preferreds generally have weak rights to avoid this type of thing, and I think of Fortress as aggressive in pursuing these types of strategies. Although the creditors of GMLP would of course put up a fight. I would love to own this high coupon preferred at a discount, but having a hard time getting there in terms of comfort level.

            1. JD, I meant it in the sense it isnt just an LNG carrier. These assets will be used with the NFE business and will fully after the existing contracts roll off. This is from Fitch.
              With the Golar acquisition, NFE will own vessels to provide services to its customers. In the near term, until Golar’s existing contracts mature and management migrates the vessels for company use, operating margins could also be adversely affected by shifts in tanker market dynamics and an unfavorable increase in charter rates.
              Path to Deleverage: Fitch expects NFE’s leverage (total debt with equity credit to operating EBITDA) to be below 6x by 2022, supported by cash flow from LNG and power sales and the completion of power plants in Mexico and Nicaragua.
              Deleveraging through 2024 under the Fitch base case is dependent on the integration of new projects, including the Hygo and GMLP assets, new sales and power contracts supplied from existing terminals and plants, and successful completion of the Brazilian terminals and related infrastructure. Additionally, NFE’s path of deleveraging is also tied to LNG sales growth to NFE’s counterparties, purchasing volumes in excess of the minimum take-or-pay requirements.
              ….Also remember how weak Golar was and was rumored to not be able to roll over debt and the preferred jumped bigly over par after acquisition notice was released. Granted we are talking relative terms of credit strength. I own almost 30 preferreds and only have 3 with less money invested. I view this as high risk and am buying accordingly. May put 100 more shares in tops. So it will always stay small for as long as I have it. Its not like say FPI-B, where I didnt think twice to buy 800 and would have bought double if it didnt have to sell something I dont want to sell. I will never own 800 of this let alone more.
              Im just mentioning this to show my low level of trust and personal hesitancy to chase much here.

            2. “ similar to the situation with SLMNP ”

              I believe SLMNP is backed by a subsidiary of LYB for which there is a breakout in LYB’s financials. At random times, Grid has mentioned the sub is doing fine.

              1. Yes, Landlord. Most subsidiaires have a consolidated breakout in annual filings. For example The Advanced Polymers unit (A Schulman) is consolidated reported on page 44 of annual filing. All LYB subsidiaries have lower IG rated credit rating. This all is very complicated stuff involving the symbiotic relationship of hold co’s and subsidiaries. I only know the basic rudimentery parts in general.

                1. I am comfortable with SLMNP and own it, but would note that a “segment” as shown in a holding company’s filings is not the same as a “subsidiary”. A subsidiary is a distinct legal entity while a segment is anything the holding company wants to define as a business segment, which may or may not be directly linked to legal entities. My understanding is that A Schulman is a component of the Advanced Polymers unit, perhaps the largest component of the segment, but we don’t really know. Of course we do not see full financials for Advanced Polymers either, but what they provide is probably enough.

                  1. JD, Im sure you noticed the preferred is not A Schulman anymore its Lyondell Advanced Polymers. Its not an A Schulman preferred anymore being the units were folded into each other. So this carries a meaning to itself. And yes you are correct the AS part of it comprises the biggest part of the newly created entity
                    That being said, in total agreement with you, its an is what it is thing. Im not going to pretend to say I understand the complexities.
                    But remember this largely was an institutional preferred, I think LYB stated only about 40 entities and people owned it at acquistion. Less than 9% of all shares were tendered for option to recieve over $1000 cash and that was a big improvement over where the preferred was trading until LYB put out the offer. It wasnt Mom and Pop refusing to tender, as they didnt own much at that time. So that pretty much reflected at that time the perceived relative safety the umbrella LYB provided.

                2. “All LYB subsidiaries have lower IG rated credit rating.”

                  I thought all LYB’s debt was at the corporate level, so why would subs have a credit rating?

                  JD, good point on the difference between a sub and a segment. I think the only scenario where it would matter (negatively) that SLMNP is a sub obligation is if Schulman/Advanced Polymers became unprofitable but the rest of LYB was profitable. In that scenario, it’s conceivable (but very unlikely) that SLMNP could be suspended while LYB continues paying all corporate level obligations from profits generated by other subs. OTOH, SLMNP gets paid before any profits can be sent up to the corporate holdco, so there’s some structural seniority which is a positive.

                  1. Landlord, After looking back at what I wrote, I appear to be conflating LAP unit as IG rated. I shouldnt have wrote it that way. But yes they have rated financial arm subsidiary levels with debt and are rated IG rated also.
                    Fitch Ratings has assigned first-time, Long- and Short-Term Issuer Default Ratings (IDRs) of ‘BBB’/’F2’ to LyondelBasell Industries N.V. (Lyondell; NYSE: LYB) and its issuing subsidiaries LyondellBasell Finance Company B.V., LyondellBasell International Finance B.V., LyondellBasell International Finance II B.V. and LyondellBasell International Finance III, LLC. Fitch has also assigned a ‘BBB’ rating to Lyondell’s and its subsidiaries’ senior unsecured debt and ‘F2’ rating to the company’s CP program. The Rating Outlook is Stable.

                  2. Agree regarding the structural seniority.

                    I just found my file on SLMNP, thought I would review since we are on this topic. Schulman did about $2.5 billion in revenue and $200 mm in EBITDA in 2017 (before being acquired). Advanced Polymer Solutions did $4.9 billion in revenue and $500 mm in EBITDA in 2019 (pre-COVID). Also note that at the time of acquisition, LYB said the deal “doubled the size” of LYB’s compounding business. So…..Schulman is about half of the Advanced Polymer Solutions segment. But if Schulman continues to do around $200 mm of EBITDA (in a normal post-COVID world) there is huge cash flow coverage for the $7 mm preferred especially since LYB’s debt is corporate (but who knows about risk of intercompany loans/payables/guarantees that could be obligations of Schulman that are senior to SLMNP ).

  5. I am down 0.16% today.

    Not sure what I did right, but I am sure I will correct for it shortly.

    I did go ahead and sell my AFINO at $24.81 and my ECCW went as well earlier this week so I got what I wanted on those flips and am out.

    Just have to watch my option plays closely for a bit now and not do anything stupid. On track to make about $20k on those this year, but I don’t like how choppy it is getting.

  6. Tim; Maybe they were all watching Stanley Druckenmiller early this morning on CNBC. Very famous billionaire investor. He was all DOOM & GLOOM. He said most likely he will be completely out of the market by years end. I won’t go into all his details as I would imagine many of you watched the interview. Yes, a combination of inflation and way too much printing of money. Throw in the Biden plan of raising the Corp. tax rate, then throw in the Cap Gain Tax increase and its setting up for the perfect storm. Kinda interesting how just a few months ago they were all blathering about how this was suppose to be the big year in the market as now the pandemic is coming to an end.

    1. @Chuck P
      I watched the same interview. Always have liked Druckenmiller…he calls ’em as he sees ’em. I wish Kernan was a better interviewer-his “questions” meander all over the place and end up as a statement. Query concisely already!

    2. His doom and gloom reminds me of the folks who were predicting Armageddon prior to the November elections (both 2020 and 2016). Investing based on politics rarely works out.

    3. Sounds like the market got too high so he needed to go on tv and try to create a sell-off. Ackman did the exact same thing back near the bottom in March or April 2020 and made a fortune. Somehow it’s not stock manipulation unless small timers on reddit do it.

    4. See Druckenmiller’s op Ed in the WSJ today on the failures of the Fed “Clinging to an emergency policy after the emergence has passed Chairman Powell courts asset bubbles”. I am good with that

      1. They said the same thing about Bernanke/Yellen keeping rates at zero well past when others thought they should have raised (and were inviting hyperinflation with ultra loose policies). Powell finally raised which caused the December 2018 meltdown after which he reversed course. Looks like he won’t be doing that again.

        I’m not saying the Fed is necessarily right. Just that the naysayers have a very bad track record.

        1. We gotta go back to the famous Friedman Heller debates about monetary policy: does discretionary monetary policy really work? In his interview on CNBC, Druckenmiller cited numerous initiatives that the Fed got wrong. If we really are in the era of Modern Monetary Theory, then doesn’t that mean the Fed has to accommodate fiscal policy and that fiscal policy has to be relied on for the brakes? A serious reversal of roles. Who expects Congress to ever cut a deficit for fear of economic consequences?

          I wouldn’t worry about Powell raising rates too soon. He is up for re appointment next year. Better that we should worry about the Congressional Budget Office now projects that interest expense will increase from 8% of our budget to 20% by 2030.

          1. “Druckenmiller cited numerous initiatives that the Fed got wrong”

            I’m sure the Fed has gotten many things wrong but the naysayers have been more wrong. Where’s the hyperinflation they’ve been warning about since 2010? Hawks like Kevin Warsh have been proven wrong while Kashkari has been proven right (thus far). Could anyone be more wrong that Fed Gov Warsh in Sept 2009?

            “if policymakers insist on waiting until the level of real activity has plainly and substantially returned to normal — and the economy has returned to self-sustaining trend growth — they will almost certainly have waited too long… There is a risk, of much debated magnitude, that the unusually high level of reserves, along with substantial liquid assets of the banking system, could fuel an unanticipated, excessive surge in lending.”

            Bad news and bearishness is how you make a name for yourself on TV (although you can also do it by going to the other extreme with “cash is trash”). I wouldn’t pay attention to what any of these people say on TV — Dalio, Druck, Ackman, Gundlach, etc.. Instead pay attention to what they’re actually doing, which is often the opposite of the impression they give on TV. Druck is still long and strong and expects to be through the end of the year.

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