Return to Sanity? No One Knows

I give up on trying to predict these markets–I heard predictions yesterday and today of end of year SP500 values of 2,500 and I heard one of 3,700. 1 is a RECORD high and the other is 10-15% below current levels.

Personally I am highly suspect of current stock market levels–seems it is too optimistic–but in the end it doesn’t matter what I think.

Regardless of the predictions it seems as though some folks are predicting a return to normalcy in the 3rd quarter while others are looking for normalcy in early 2021. With the business destruction and desperation I am seeing I am more in the 2021 camp.

Yesterday I read that the airlines are so desperate for cash that they are selling ‘miles’ to the banks at large discounts–even with bail out money they all know they will not return to normal (or even 50% of normal) before at least the 4th quarter–if then.

Over in the comments this morning Charles M noted REIT CorEnergy (CORR) was taking a pummeling. Seems that Cox Energy, which accounts for 47% of the companies revenue has suspended payments. I see their common shares are down over $10 to around $14 while the companies 7.375% perpetual preferred shares (CORR-A) are off $4/share–around $14. The press release is here.

Hammerings like the one at CorEnergy are the type we will be seeing every week for the rest of the year–there is no visibility.

I know some folks are talking about large cooperative CHS. The company released earnings last Wednesday and they were typical with what we have been seeing from them for a couple years–almost all the earnings are coming from the refineries–very little from the ag end of the business. The press release is here. I suspect they will have reduced earnings from the current quarter as volumes of refined product will fall–and ag will not generate anything. codger mentioned today that their nitrogen investment (in CF Industries-CF) tossed off $5.7 million in net income last quarter–what a joke–$3 billion invested for $20-$25 million in annual income. That joke cost the last CEO his job.

Yesterday I bought a bit more VEREIT 6.70% preferred (VER-F) in the $22/share area–that was adding to current holdings.

Also as I mentioned yesterday I bought 100 shares of the Tri-Continental (TY) 5.0% perpetual--I paid a little below the $55 redemption price. I bought this as part of my 50-55% safe portion of the portfolio.

Here is how I am being forced (foreced because I have little visibility of the future) to set my investments up – like this—55% safe issues, which by their nature are lower coupons—maybe around 25% decent quality unrated issues-for instance American Homes 4 Rent (AMH) perpetuals and then 10% more speculative issues–i.e. mREIT and lodging preferreds.

67 thoughts on “Return to Sanity? No One Knows”

  1. AATRL:
    ” Cumulative distributions of 5.15% ($2.575) per annum are paid quarterly on 1/15, 4/15, 7/15 & 10/15 ”
    “The company has the right, at any time, to defer interest payments for up to 20 consecutive quarters (but not beyond the maturity date).”

    Is anyone concerned now about this happening? And are they truly cumulative if suspended?
    Not sure if this has been asked before.

    1. There are dozens that have that feature. One just deferred a week ago. (Hillman) There will likely be others.
      IIRC, about 10 suspended in 2008-2009.
      of these I think 4-6 resumed, and 4-5 went bankrupt, but wasn’t tracking the bankrupt ones, but did track the resumed ones starting in 2012. The ones that resumed were a Ford, Hillman Cap, and Old Second Bank and one other I can’t remember off the top of my head, though I can look them up.

    2. Gary, Some people get confused about these types of things and actually think preferreds are safer because they dont mention a 5 year deferral. But that is not correct at all. Preferreds can defer forever! In fact one reit preferred that trades daily has been suspended for 10 plus years running.
      Remember this is bottom rung cap stack debt. Due to how a company progresses in times of financial stress, more debt and secured loans gets piled on top of it. So ultimately come end of the road it would have little to no more value in bankruptcy than a true preferred. That is just how it usually works out. So the easiest thing to do for a layman like most of us are is to think of this issue as a “preferred” that is taxed as interest not QDI.
      And instead of worrying about a 5 year deferral realize that this caps the deferral length instead of being exposed to a perpetual deferral.
      The risk of deferral isnt the clause, but the actual finances of the company. No deferral can occur unless common stock divi is suspended also.

      1. All true of course but worth adding that most of these 5-year deferrals attach to junior debt. Junior debt is usually sold to retail investors whereas most senior debt is institutional. 5-year deferrals won’t fly with institutions so you rarely see them in in senior debt.

        The question to ask when one looks at junior debt is are you being paid enough to be subordinated and deferrable? What is the senior-junior spread? And what is the senior-preferred spread for that matter?

          1. I sold DTLA- in early February after holding for almost 5 years. I’d like to say I foresaw the CV19 problem, but no. I had been betting on Brookfield creating a liquidity event for the portfolio (high rise office properties in L.A.) this cycle and simply lost faith it would happen anytime soon. There’s too much arrears now to ever payout I think. Dead money for 5 years but better than +50% loss.

      2. GRIDBIRD-
        Thanks, also am wondering about the cumulative part in the second sentence at Q-online. If deferred, will they accumulate?
        Would AMG have to stop their div before before deferring AATRL?

        1. Gary, I can only give you a partial answer, sorry. The ol brain cant dig deep enough into the lawyerese language. But, yes the interest payments do accumulate. And you would have to pay income tax on the deferred payments even though not receiving if held in a taxable account..
          They also have a pure subordinated debt issue trading named MGR and it also has a 5 year deferral too. This is from MGR…
          Certain Limitations During an Optional Deferral Period
          During an Optional Deferral Period, subject to the exceptions noted below, we shall not:declare or pay any dividend or make any distributions, or redeem, purchase, acquire or make a liquidation payment with respect to, any of our capital stock, or make any payment of interest on, principal of or premium, if any, on or repay, repurchase or redeem any debt securities (including guarantees) issued by us which rank equally (“pari passu securities”) or junior (“junior securities”), in each case, in right of payment to the Notes.

          AATRL is a more complicated beast…You have the subordinated debt and the trust as separate functions and then everything else with the convertible. Its not an easy read for me. Typically common dividends cannot be paid on a suspended debt payment. I couldnt definitively track it down scanning it. But there are a lot of exceptions to their rules posted and I dont quite understand it all.
          Maybe my brain would fire better if I owned it. But I dont and wont. I cant understand fully the issue, dont understand the companies mission and all their leverage, and dont like the perpetual downward slide of the common stock. But that is just me and my limits. It may be an outstanding issue to own and hold.

          1. Grid – you don’t own your own brain????? Boy the ole GF’s really done a number on you……….;)

        2. yes on both.
          If they defer, they accumulate and yes, they would need to suspend the common dividends

  2. Mark (below), It sounds like you want to trade and play the market IF, WHEN and MAYBE. It will never be offered up on a silver platter. That may be your source of conflict (your paragraph 1). Make a plan for who you are and what “is my approach to the market.”
    In old fashioned brokerage there were (were!) two rules that we the standard for ethics AND they work together. 1) ‘Know you Client’ and work within THEIR parameters. Now you have to do this for yourself and it can be a lonely game. 2) ‘Prudent Man Rule’: what would I do if I was this client and know everything I know? Means you have to have rationalized a plan and stay with that plan. Now there is just a brokers checkbox, risk assessment that really mean nothing.
    Can you get to the point where you are in IG or high IG and solid companies that will reassert themselves even if there is a downturn? (May be a core holdings).
    Can you reinvest enough from dividend accumulation to achieve a longer term compounding and average in a chunk when there is a capitulation in your vehicles like IRA? This is different than ‘staying fully invested which is what I do now that I am retired.
    Are you comfortable and know all details regtarding the PROPER use of margin in taxable accounts? Not for everyone. These quick reassertions of price and Fed rescue has made it seem like this is easy, but true bears can grind on and on and destroy esp when leveraged.
    I have always kept a paid off home with a clear credit line HELOC, (not a fix HELOC loan/ small local banks are good for this, right now there are no fee, no appraisal and small annual fee like $50 offerings if credit is good.) and been able to same day advance funds (pre-link accounts) in capitulation situations and been okay with interest payments if I had to pay up for awhile. My own margin account and cash management tool. It may take time to get into this position.
    SOOO. REALLY think thru all options. All the events you mention WILL happen, sooner or later, so be prepared to act WHEN it happens. There is no crystal ball, but everyone will tell you they know ands smile. Don’t jump the gun until it’s obvious and getting ridiculous.
    Same thing with selling, sell into strength. Let’s face it for every seller there is a buyer…in these situations the pros DO BUY and then manage. FYI: CDE stock: look at a long term chart. Put in a line at 5-10% at top range and bottom range. When do you want to buy? Several opps at around $2, but not very often. I loaded up this (and PICK) last time in the Roth, with out knowing whether it may take five years to reassert. Part of MY GAME.
    When to sell? Stage ou by percentages?, use sell limits when prices reassert? or some other plan? Know your toolbox, every tool and every link in the brokerage tabs.
    KEEP GOING! I have been a student and enjoy it. It gets easier with all the BS eventually falling off (like CNBC and most of SA, they are only there to challenge your intelligence.)
    PS: Still hope to go to Dead &Co in Boulder this July and be out of the Midwest heat. Caught me at a good time here in lockdownland!
    ALL WAYS the BEST!

  3. I’m still struggling with how to position my portfolio. Part of me wants to liquidate everything and sit in cash. The other part of me knows that staying in the market is better. (subjectively speaking depending on what one is holding…) 🙂
    I believe a lot of the fear selling is probably done. (Assuming we do not have ANOTHER black swan pile on top of this one.) There will be a lot of pain in individual companies. We may reach lower lows as the general market / economy deteriorates, but probably at a slower clip. Obviously, I’m speculating as I really know nothing…
    I’ve built small positions in many of the names being discussed on here. Most are sitting at or near my average price. ENO, SR-A, IPLDP, WRB-B, TY-, RILYZ, ECF-A, PLYM-A, STAG-C, CBKLP, AATRL, a number of others.
    I guess what I am wondering is, if the market does go down (significantly) from here, will some of these (sturdier) issues see the same type of fire sale prices that we saw a few weeks ago? Or said another way, if I unload some of this stuff now, what is the likelihood that I will be able to get back in at ‘reasonable’ prices again?
    I’ve never navigated anything like this before. I only started investing in 2010. So, basically, I spent 10 years ‘honing my skills’ in the biggest bear market rally in this country’s history.
    I guess my bottom line is this. I want to raise some cash, I don’t like selling for a loss (it’s mostly all in IRA so I don’t get the loss harvest), I don’t want to get rid of the good stuff…. I usually answer my own questions in these postings – dump the losers, buy more of the good stuff, and don’t worry about the short term losses. Does that pretty well sum it up? Now, if I could just get that crystal ball working again 🙂

    1. Given that we have never been in this economic situation before, none of us have a clear crystal ball. I am selling issues at breakeven / small losses and raising cash in anticipation of another significant market drop in late April or May. I don’t think the economy is going to restart in the next month or two. Best case, I buy better quality issues at a significantly lower price. Worse case, I rebuy quality issues at a slightly higher price.

    2. Mark,
      Many of us have some of the same concerns/questions/fears.

      I don’t have the magic answer for you but I know the wrong answer is to liquidate and sit in cash – unless you just absolutely feel nothing else will work for you. I think you feel there are still options…

      You do seemed skewed in the names you mentioned – towards a lot of financial and ute holdings. Nothing wrong with that, but perhaps consider some more diversification to limit risk exposure in just a few sectors.

      You could also consider picking up some common stocks. Although I’ve spent the past few years focusing mainly on ‘fixed income’, I’ve spent quite a bit of money on the common side in the past month+ in stellar names of the big boys like Microsoft, J&J, Apple, Verizon, Disney, Proctor and Gamble, etc. Neither of those names will be disappearing no matter how bad things get. If the Fed is willing to bail out high yield junk ETF’s as they are now, believe me, they will keep those names afloat.

      I buy on the down days like today and sit on my hands planning and plotting on days like yesterday. It’s really working. I set a ton of lowball limit orders and if they hit, great! If not, I’ll be patient.

      Maybe you could take the time to REALLY look into your “losers”. I think many of us have at least one or more. Check into the balance sheet. See what news the company is forecasting (not what Seeking Alpha talking heads are saying). If you are comfortable with what you hear, strap on and ride it out. If you feel squeamish, sell it off.

      I said earlier in another post, that ole’ saying that HOPE is not an investing strategy. Neither is PANIC. Hang in there buddy. Many of us are concerned about what the future holds but I am not at all worried that we will get thru it.

      I’m not ashamed to admit that I literally broke down on 3/23/20 when the pain was the worst and we crashed to the lows. Everything in me said “just sell it all, I can’t stand it anymore!”. I sold just 10 shares of Paypal and that’s it. And then the skies cleared and the sun came out and here we are, with what, a ~21% gain on the DOW from that lonely end-of-the-world day. I had to believe that PANIC would have led me to flush the losses – and I’d likely never be able to recoup them ever again.

      Hang in there my friend.

      1. A4I, Yes, diversification. That was just a cherry picked list of stuff that I am nearly flat in. I do have some commons AMT, NEE / NEE-I (I just sold for a small profit), hoping to unload SPWR for a small loss, got rid of a couple SLMNP at a loss because I felt uncomfortable with my overweight position, have GLW, DIS, AAPL, IBM, NOV, IRM, TJX, O (for a flip), OLED, BAM, BEP a couple shippers ATGO-G and HMLP-A, been playing SQ for small gains a couple times, just sold off PEAK for about breakeven, trying to unload WRB-B and IPLDP for very small profit, on the fence about COWNZ, GAB-J – have had those for several years – averaged down in both and sitting about even, PEI-B, SKT – both off significantly, but bought some PEI-B near the last bottom and just sold off the portion that I was in the money on, TERP, EPD, KMI, EP-C, FSLR, So, not necessarily the best choices, but I feel pretty diversified. Hoping to pick up some more commons as that’s the field I’m most comfortable playing in. Also been adding to VOO and VTI.

        I’ve been a net buyer through all of this, but felt I overspent my wad and wanted to get some of it back. I’m up pretty well in everything I’ve been buying since crash.

        I appreciate the thoughts from all of you. Just no time to respond individually. Have to run to work.

    3. Mark

      There is no one size fits all answer to your question – and anyone who tells you otherwise, or says they know what direction the market will move is full of it. Everyone’s situation is different. Everyone has different needs, goals and timeframes. So what is good for me may not be good for you and vice versa.

      I am in a different position (retired early and have more invested) now than I was in 08-09. So what I did then is not necessarily what I would do now.
      But in 08-09 I bought things (nearly all common stock as I did not move to preferred til I was getting close to retiring) at extreme fire sale prices – at various points on the way down, at the bottom and a little more on the way up. No one knew when the bottom would be – just figured that out in retrospect. I bought and after using all my dry powder just quit watching – maybe checking on my portfolio once or twice a month just out of curiousity. And I made boatloads of cash. Because I was in it for the long hall and believed I bought good opportunities at bargain prices. It paid off.

      In January 2020, I had a much more conservatively positioned portfolio than I did in 08-09 given my needs had changed. Although I am probably more aggressive than a number of people here as I do dabble in BDCs, mReit preferreds, and some other riskier high income (offset however by a very conservative counterbalance in a 401k I still have with my last employer). I posted a few days ago what I have done (you can search for that post as I won’t repeat it here). But what I have done is different than what may work for you.

      OTOH, I manage a rollover IRA for my daughter who is 26. I sold a few more conservative things and bought some more aggressive stocks that had sold off bigtime in the panic. She has the benefit of plenty of time

      So you need to look at your timeframe, your needs, etc and make the best decision for you in the long run. If you have the benefit of time, I would say don’t get paralyzed by daily movements now or worrying about whether we fall more or not.

      Before I close, I would suggest you read this:

      It is a very good read – and too many good points to highlight all of them – but here are a few:

      Cautious positioning in recent years has served its purpose. Investors who favored defense over offense have experienced smaller losses this year,
      have the satisfaction that comes from relative outperformance,
      and are able to spend more of their time looking for bargains than
      dealing with legacy problems. Thus,I feel it’s a time when previously cautious investors can reduce their overemphasis on defense and begin to move toward a more neutral position or even toward offense
      (depending on how sure they want to be of grasping early opportunities). I’m not saying the outlook is positive. I’m saying conditions have changed such that caution is no longer as imperative.With part of the crisis
      -related losses having already taken place, I’m somewhat less worried about losing money and somewhat more interested in making sure our clients
      participate in gains. . . . .

      Before I close, just a word on market bottoms. Some of the most interesting questions in investing are especially appropriate today: “Since you expect more bad news and feel the markets may fall further, isn’t it premature to
      do any buying? Shouldn’t you wait for the bottom? ” To me, the answer clearly is “no.” As mentioned earlier, we never know when we’re at the bottom. A bottom can only be recognized in retrospect: it was the day before the market started to go up. By definition,we can’t know today whether it’s been reached, since that’s a function of what will
      happen tomorrow. Thus, “I’m going to wait for the bottom” is an
      irrational statement . . . .

      That’s why I so like the headline from Doug Kass that I referred to above: “When the Time Comes to Buy, You Won’t Want To.” It’s not easy to buy when the news is terrible, prices are collapsing and it’s impossible to have an idea where the bottom lies. But doing so should be the investor’s greatest aspiration.

    4. Mark in CO- The game to play in 2020 is to lose as little money as possible. I have never seen financial assets more expensive then right now. That being said I sold 75% of my preferreds and HY bonds at prices I find crazy high considering the current situation. I’m only holding a few bonds that are priced below what I feel the value is (I may change my mind). I’m sitting on a 8% loss in this IRA account that was 100% invested in Feb and will be happy riding that loss into 2021. That being said…I am making a shopping list and will be a buyer if/when this bubble bursts.

    5. There have been a lot of good answers to your question given by others already. I’ll add one tactical suggestion.

      This is the 6th major correction in my investing life. The 2000-2002 tech meltdown and the 2007-2009 great recession were the worst; each cost me 40% of total portfolio value. This one – about 19%.

      If you are holding your stocks in a taxable account, it can be useful as a way of making lemonade, to do some sideways trading to generate a slug of loss carry-forwards which you can use when things are on an upswing again 12-18 months down the line. Consider looking for opportunities to harvest losses while staying invested. Most of us have invested in stocks with similar profiles (or have identified such) that would allow for tax selling, while reinvesting in such a way to avoid losing out on an unexpected upswing. You wait 30 days to avoid wash sale rules, consider selling something else and going back into the original investment assuming you still like it. No trading costs any more and minimal opportunity costs. under most circumstances

      For me the selection of trading pairs and engaging in the trading activity needed to accomplish this is good for my morale even though it isn’t going to make me money today. A psychological barrier, realizing those current losses, can feel icky while you’re doing it but in the long run having monetized them it can speed your portfolio’s recovery if you have a trading portfolio where you can put them to work.

  4. I thought about buying some SLMNP today, but I have too many concerns about it:

    -Parent company LYB went bankrupt back in 2009 and emerged a year later

    -LYB is a chemical company, but all of their products seem to be related to the oil and gas industry. Their HQ is in Houston, which says a lot. (HQ is Houston is pretty much a red flag for me, going back to 2001 :cough: Enron :cough:).

    So, even with the 802 put on SLMNP I wouldn’t feel good about owning it here. If someone thinks otherwise, I would love to hear why.

  5. Let me give you a perfect example as to how things can really get “mispriced” atleast in my opinion. WFC+Q is a 5.85% coupon and callable on 9/15/23 priced right now at $24.73. Then look at WFC+R which is a 6.625% coupon and is callable on 3/15/24 and its priced at $26.86!!! Now if you dissect this thing there’s really only .19 cents difference annually and only a difference of around 6 months (2 payments) in the call features. I have more than a full position in WFC preferreds but I would say that the WFC+Q offers a much better deal to the investor that doesn’t own either. Just my opinion. To pay an extra $2.13 makes little sense to me.

    1. People are willing to pay up for the higher divvy until first call and for the higher floating rate post first call of the R flavor. Not me. I’m almost totally turned off by any FtF rate issue because of where rates are and where I believe they will be staying for years ahead. WFC doesn’t really have a habit of calling on the first call date so that juicy 6.625% will take a significant haircut if it begins to float.

      I agree….doesn’t make much sense at all. WFC-V is the only one of interest to me, but at the right price.

    2. In a few years if we are still at/near 0, you will see these bank floaters get decimated. I agree with A4I. Many investors don’t understand this, but look at the current rate/yield and do not read the prospectus. This is what makes a market

      1. You got it Lucky. I am liquidating all FtF issues I hold and I have about a dozen of them. They are for the most part, trading much weaker than their fixed brethren and the market is telling us something. Throw in the Libor issues and this problem gets more challenging. There are easier pickings although I will the fatter dividends from the FtF’ers.

    3. I had pointed this out a week or so back and bought it and then sold it. I think there is some issue with it not appearing on some trading systems and thus it is mis-priced. My observation of it is intermittent but I guess could be cause for this one being mis-priced.

      I sold all of what I owned at a decent profit abut this is one of those I keep a buy order to purchase at what I think is cheap…

  6. Chuck –
    If the big banks suspend their common stock dividends…do you worry they wouldn’t pay the div on the Pref? I’ve read it is a good thing for the pref if common is cut (saves money) but It’s all non-cumulative so what incentive do they have to continue to pay the pref holders in this scenario?

    I don’t think this is likely but I’m also not building full sized positions because of this concern….

    anyone know what happened in 08/09? common div was cut…did pref survive?

    1. Sort of.
      If they stop the preferred dividends, the FDIC is on their doorstep and they are being shut down or (more likely) merged with another bank who will be taking over the bank. So it is unlikely, but not impossible)
      A couple of preferreds continued paying through the great recession were issued by Countrywide and Washington Mutual, even though the parent companies were merged out of existence.
      See this filing.

    2. I think this time it is more likely that they do actually stop all dividends. Sort of like they all got together and said no buybacks for now. The politicians may also ‘shame’ them into considering this so as to save and build up reserves for this crisis…Or, this becomes a part of next bailout should they need one later in 2020.

      I do recall owning a few bank preferreds in 2007-2008 but do not remember them being suspended even though the dividends were surely cut by all banks as part of TARP.

    3. Prior to 08/09 there were very few prfds that were issued with NON- cumulative dividends. I would like to say there were none, but my 84 year old memory is not always without flaws. The Graham-Rudman act, which changed many of the ways the banking system functions, had an amendment added to it by Susan Collins. This amendment does not allow banks to consider prfds as tier 1 capitol. Following the passage of this bill, banks chose to call most all of the prfds that that had cumulative divds and issue the NON-cumulative versions. They were permitted to do this under a provision that most often is included in the prospectus and permits the issuer to call, even before the call date, if a significant tax event occurs.

      So, the answer to your question is that there is no history. However, after living through the 08/09 crisis with many bank prfds, thay all got called, I concluded that during this period, many, if not all, banks would have eliminated the divds if they could have done so with the NON-cumulative provisions. Therefore, if I see NON-cumulative, the issue has no place in my portfolio. This is a personal decision, and there are many who will disagree with me.

      During this same time, I had brokered CD’s in several banks that failed. The FDIC stepped in and IMMEDIATELY refunded the face amount as well as any interest due.

      1. Jag: Thank you for bringing that point up. It would be no different to stop paying on a non-cumulative preferred than it would be to stop paying on the common. Wouldn’t it be nice if we could all stop paying interest on our personal loans with zero consequences or at least the promise to make it up later down the road when we have more money. I do have a question though. Would we be better off buying BB issues from banks as those are bonds and less likely to be defaulted on unless bankruptcy proceedings are under way ?

        1. Bill, then you have to do a deep dive credit assessment to determine if a subordinated debt BB issue is higher quality than a lower stack preferred is from a different bank… Good luck with that as Banks themselves dont really know as they have to guess on loan loss reserves themselves.
          Personally I own only 4 bank issues, 2 trust debt issues, and two preferreds. That being said I am under no illusion that BB subordinated debt is largely any safer than a preferred is. Most subordinated debt credit wise is largely treated as a good chunk of actually being equity anyways being its skid row place on debt cap stack.
          FWIW, a total ton of smaller bank preferreds blew up and became worthless in last crisis as many smaller banks went belly up. But you never know. I own one bank preferred that was issued in 1980s and it has never missed a payment and is non cumulative.

          1. Gridbird: I understand what your are saying. In my limited ability to try for a bit more security I never could see much difference between a preferred stock and a BB. It looked to me in most cases if things went south you would lose either way. The only banks I hold right now are WFC-X and BAC-B. Sold both in early Feb and bought them back after the drop. Actually that is all I own right now other than 1000 shares of CMSC I bought a couple weeks back. I have to thank Tim for bringing that one to our attention, prior to that I haven’t looked too close at UTE’s. Being in California, home of PGE and SCE “UTE” is a bad word 🙂

            1. Ya, Bill I suspect you are paying more than the current 8 cent KW I am, ha. In fact we are very wasteful and our billing is the opposite. PCG charges you more when you go over the base. Out here in fly over country if we leave the lights on too long our costs go down from 8 cents KW to under 6 cents KW.
              But, that is a very small consolation prize to at least most of the excellent coastal weather you all get out there. Plus we have to swat at bugs more too!
              On an anecdotal observational point concerning BB and preferreds of same company, the safety is mostly illusional in nature. But, until that point of financial stress is fully reached the one advantage of the BB is generally they trade stronger. So even though its largely illusional it does show up in relative pricing strength though…. but only to a certain small degree, of course, only though.

    4. To Denard; Very valid point and no argument from me. I did watch CNBC this morning as they spoke about BAC, WFC, etc. It seems “atleast at the moment” they are very rock solid as they have set aside alot of money for loan write offs. But YES, Iam very much concerned about the preferreds. BUT, my question to you and all here what company actually has a “SAFE” preferred??? Here’s what they said on CNBC wednesday morning the 15th: JPM set aside $8.3 Billion for credit losses, WFC $3.8 Billion, BAC $4.8 Billion, and Citi $7.0 Billion for credit losses. Huge numbers no doubt about it. But they all acted like they can handle it accordingly. I guess my concern is what happens in the next quarter and the quarter after that, etc etc.

      1. No argument from me.
        Just trying to get a 2nd opinion and you mentioned being long a few of the big money center banks pref
        It’s safer companies (non-cumul) or riskier reits/mreits (cumulative)…
        I guess I split the difference and own some of each.


  7. You know what? Maybe one word in your title nails it all.


    Seems like it is just rampant across many spectrums.

  8. Mark to Market pricing is really Mark to Gossip.
    The next cycle is time to hone and expidite your plan. A good tough plan.
    This print cycle makes alot of weak players look good. The game is Poker, one player takes the pot. Of course, the house (brokers) and media take their drag so never listen to them, their job is to keep the casino open.
    Get tough, know yourself, stick to what you can live with for a long time and DO NOT act in haste or quick thought. Get in a position where you are outside of the game.
    This liquidity event, as long as it lasts, may? be the last best chance to be in a great place. If not? You still win.
    Just Sayin’. JA

    1. This is MARVELOUS!! Well written and what a turn of the pen!! The paragraph in the middle of page two! Almost meta-physical. Nice to see in America. JA

    2. Marks is always, well, right on the mark. The part about how the Fed distorts economic behavior is important to understand. The constant “saving the world” from its follies will be the cause of its destruction. Privatizing the gains and socializing the losses has made some rich but many more poorer.

      At the end of the day you can’t repeal the laws of economics.

    3. Thanks for posting AKJ—I had seen it earlier but didn’t post–I like Howard–smart dude.

    4. Glad others found it helpful.

      Eddie Lambert, that renowned investor, according to Howard Marks. Eddie Lambert is a hedge fund manipulator who has lined his pockets while doing nothing for the Sears franchise. I remembering Cramer touting Lambert as smart as Warren Buffet. “Buy just 1 share of SHLD” Cramer used to scream. A great way to you to lose money while Eddie was making it.

      Some of Marks funds at Oaktree Capital have been good funds. For all, I know that was in spite of Marks.

      Anybody who quotes and implies good things about Eddie Lambert, is welcome to their view.

  9. RE: CHS, does anyone know if the preferred dividends need to be paid before anything is returned to the co-op members?

    1. I believe that is correct. I recall a poster on here a few months ago who previously did business with CHS say that is the case.

      Also, I believe, correct me if I’m wrong, dividends can be paid out of their capital reserves (there is a table on this in the 10-K).

      1. I don’t wish to understate the risk of any company these days but that said CHS pref does have some nice attributes. It does rank above “common” in both distributions and liquidation and it is cumulative. As a co-op there’s a strong incentive not to cut patronage to zero. There is also a lot of discretionary capital spending that can be cut.

        But the company does carry a lot of leverage. The preferred are a big chunk of the total debt which I’d rather not see as a pref holder.

        1. Agree with you Bob. I hold large positions in the M and N. I’m not overly concerned, but they are in for quite a rough patch over the next year.

        2. FYI, CHS started and is still to my best knowledge a farmers owned co-cop. Well administered. The farmer owners have shares of CHSCP (8% coupon) and CHSCO. The company has offered investors CHSCN, CHSCM and CHSCL. It has no common stock. Years ago, it wanted to open a fertilizer company but wisely took the loss and stopped (great call). Lord Xot, the shrewd but daring and very nimble defacto leader of SiliconInvestors (the other leader is our Gridbird with quite a few seasoned income investors) bought shares when the price was low just a few weeks ago. I have sold mine taking profit before the market crash. I totally agree with Tim that this is not a SWAN in terms of valuation WTI has NOT shown any meaningful rising (if any at all) despite talk of some small cut in production by the Saudis et. al. I believe that WFC-Q (the best of the bunch as identified by someone on this WEB and all the To Big To Fail bank preferreds are safe, despite the Dodd and Frank rule making the preferreds non cumulative. Yes. Technically they can defer the dividends many quarters or even years. Moody, SP and Fitch will immediately downgrade their rating and the Feds cannot stand that our biggest banks have become the new Deutsche Bank. Just MHO.

          1. John, It really has just become a trade vehicle for me past few years. A couple years ago, I started referring to the company as an energy company masquerading around under the guise of an Ag banner. They long ago quit making any meaningful profitable dollars in the Ag sector despite that being their original purpose.

            1. Gridbird,
              I thought when it first came out, it was making money. Then it borrowed lots of money to build the fertilizer factory. You are correct that it always have some significant exposure to oil and gas.
              Before the market crash, I bought quite a few CBB-B hearing the news that Brookfield bought the trashy Ma Bell baby. Now MIA (I remember that AWFUL name from the days of Rida et. al, very heavy leveraged oil/gas MLP; Rida gave it a strong buy (I did not follow) has outbid Brookfield. I am a little concerned. But then compared to STWD, perhaps CBB-B is not as risky. I guess I am getting too old to want to taking on all the drama. CORR common up today. CORR-A down but now is coming back up. I sold some under-performing mutual fund in one of my IRA. I think I will replace it with your PW-A. The price/ volume chart for PW seems to suggest that everything is fine circa mid July 2019 with just a sharp down when they threw all the babies with the bath water. Brilliant pick, Grid. THANKS. No bargains today except WFC-Q just slightly below par. For values, I believe PW-A is solid.

              1. John, CHS has been around for almost a 100 years. They still generate a lot of revenue from Ag sector, just precious little profits. But that sector has struggled in general for a while.
                John, I wouldnt jump too deep off on PW-A personally. I only own 300 myself. And I also have it in my “high risk bucket” too. And I keep this area small overall in general. If everything goes as planned its fine. But leasing to marijuana growers is not the safest SWAN I can think of, ha. The solar and RR are fine and the rail, is in essence a perpetual IG annuity payment. But still now they have more debt from buying land and this company is hardly an “economy of scale” business.

                1. Grid,
                  Thanks for more color on PW-A. I got 200 shares filled plus some more in my other account(s). I quickly cancelled the remaining 100+ shares. Perhaps Tim’s AATRL which I bought quite a few shares look like mid or slightly higher than mid $36 makes more sense. OID probably does not affect IRA? Or even with that, the Quality and Yield is spectacular. OR just leave it in cash waiting for more drawdown. I must learn to be more patient, leaving no dry powder has been my biggest error. Schwab also warned me that PW-A has the call risk. But the 200 shares were filled with $25.25, not so bad.

                  1. John, everyone has their own style be it sector, quality, duration risk, and allocation size per issue. It appears Tim mirrors me a bit as far as percentages dedicated to quality with a smaller taste bucket of higher yield. I guess I should say I mirror him since he has done this longer than me, ha. But every ones risk level is different.
                    For example I just wont touch an Mreit, shipper, or BDC. Never have really ever owned them (outside a quick couple day flips done only a few times ever) and just have no interest in them. Doesnt mean that I am right or have been right, Its just how I roll.
                    But anyways I will own a few higher risk issues. Just dont own many now. PW-A, RILYN, and ASRVP are probably the only ones that fit my high risk profile now. But I will overload in individual safe ones which may not be correct either. For example I reestablished an entry point in SR-A for the zillionth time yesterday buying 26.08-15 after dumping at over 26.40 a few days ago. Then doubled down with 1000 more this morning in 25.50-.60 range. But I lose no sleep owning these and prefer being overexposed here than other liquid issues. But am always willing to sell and try to buy lower again though too.

                    1. Grid, I just realize that AATRL is too expensive. Not filled. TSCBP, once upon a time, I had to pay above par to get this “jewel” is on sale again. So, I used the remaining money trying to get some. TriState Bank is not a SWAN but most likely unlikely to fail, as I recall Tim made a good timely small or moderate position on TSCBP. I should have kept or bought back STL-A, which was an re issuance of an upstate New York or somewhere on the East Coast bank rated a notch below investment grade, bought by the Sterling bank. Yep, it is not so cheap $24 with a 6.5% nicely call protected.
                      Picked up 142 shares of TSCBP @ $21 decent buy IMHO.

    2. I am not an accountant or financial guy. Just a retired scientist digging all the info and trying to understand financial statements from AAII articles. CHS is an cooperative. The owners are farmers who own the CHSCP and CHSCO, all preferreds. When they need money, they will sell their shares. Of course, they can also buy investors shares. One positive thing about this co-cop, there is no foul play. One administrator taking more risk than the co-cop wanted, was quickly replaced. Nothing like the awful CEO’s of AHT or CLNY (CLNY never had a decent CEO since its inception) for example. I sold because I tend to favor bank preferreds. Despite de facto repeal of Dodd and Frank, the Feds probably will not want to see a whole bunch of banks suspending preferreds. Just my humble opinion. Your dividends should be safe. Hey, the Feds are obviously backing up the BDC’s as revealed by the Oaktree principle, my STWD. Lucky me. CHS should not need bailout. This is not a CORR which would need the CEO probably begging the Feds. All depends on his connections like the CEO of CLNY or STWD or AHT, it looks like. STWD price went down, after paying their dividends not that long ago.

    1. Yep, Martin, I am stuck back to the “good old days”, selling and buying back SR-A for 40 cent price movements. Bought them back from golf course today late in the day after selling them a couple days ago.

  10. Tim,
    At 459pm last night, I posted the alert on the CORR issues to the Reader Initiated Alerts page. Did it get stuck in moderation? I knew it was important to some folks here and posted it as soon as it came across my email alerts.

    I also posted the CHS earnings alert as well and it said it was stuck in moderation, awaiting approval. This info was posted last week on 4/8/20 at 152pm.

    1. A4I–sorry about that–I know I cleared a couple items out of there yesterday or last night–don’t remember what they were. The damned spam filter seems to randomly kick out an occasion legitimate post—then once 1 is pulled out it makes all further posts from that individual go to spam until I get it cleared.

      I didn’t see any reason for the filter pulling the posts out–that much I remember.

      For the most part the filter works wonderfully–it pulls a lot of junk posts everyday, but obviously at the cost of an occasional misfire.

    2. Affinity,
      I don’t want to take credit for alerting everyone about CORR, I read your post and I looked at it in the futures market and saw it was down big time so wanted to let people know about it again. As I get older I seem to be waking up around 6 EST when the day is just starting and its still 3 here. Nothing to do with this market. last 2 days seem unreal so I been just watching. I think humanity as a whole wants to believe and hope we will get back to normal and we are seeing it reflected in the markets.
      What AJK linked above to Oaktree is good reading but was putting me back to sleep so I will finish later. What I can say is on the West Coast we were some of the first ones to experience this and take action and will probably be the first to come out of it. As of now trying to flatten the curve it was mandated starting Friday all people going out in public need to wear masks. My work wasn’t taking it seriously and neither were a lot of people or businesses. Also a lot of business had conflicting standards. Now I think the health dept is going around inspecting stores that are open like hardware, grocery, etc, and telling them the basics.
      Instinct has been breed into the survivors in the animal kingdom. Doesn’t matter if your a worm or a human, if something abnormal happens we all go on alert and maybe panic. the difference is intelligence, Should you run off a cliff or out of a burning building.
      What happens in the future ? who knows. I will bet you airlines will start back up but when? I will also bet you face masks will be required at first and no one will be allowed on the plane without one.
      What does this tell you about investing? nothing. Except maybe MMM is a good investment because it makes them.

      1. I have to think that the same factors hitting CORR will hit some midstream MLP’s as well. (Though not as concentrated, like CORR)

  11. WOW, what an incredible difference a couple of days truly makes. No real bargains left out there in the Preferred Universe. All the Mega Banks that I bought a couple of weeks ago now have gone from $22, $23, to well over $26 and even $27+. Never in a million years did I think they would do a 180 that fast. On a “fun note” I saw where Chesapeake Energy (CHK) is doing a 200 for 1 “reverse stock split”. The stock trades at .13 cents per share. I remember many years ago when the CEO Aubrey McClendon was buying the shares with both hands at $29 a share. Thankful I sold it many many years ago. I’m starting to wonder if we are going to get that “2nd Chance” to buy more shares of our favorite preferreds that all the GURU’S are predicting?????? Its gone from a Universe of 100% great bargains to now less than 5% in my opinion. I looked thru all my holdings today and not a bargain in the bunch anymore. Hope and Pray you guys are all safe, sound, and healthy.

    1. Glad to hear you got some good gains Chuck. I think we will get another shot at it, but only God knows for sure.

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