Stocks Set to Move Sharply Lower

The DJIA is off about 400 points as we write. This is a continuation of the move lower from last week.  It is interesting that no particular reason is seen for the move–no real catalyst.  A few Dow stocks are moving sharply lower–3M and Caterpillar helping to drag the average lower, but beyond that no singular items appears to be responsible for the fall.

Interest rates are moving a bit lower – the 10 year is in the 3.15% range, but it is moving grudgingly – no wholesale movement.

While no one can really pinpoint exact reasons for movements in stocks and bonds on a day to day basis, I believe that higher interest rates are the culprit behind stock weakness.  It only makes sense that investors like us are much more likely to hold cash (i.e. CD’s, money markets etc) when we are able to garner returns of over 2%.  While it still seems like a low interest rate we all know that earning 50 cents a month on cash holdings of $50,000 (or some such number) was down right depressing.

At this point in time we are not concerned with our preferred stock and baby bond holdings as the equity selloffs have not been strong enough to drag all issues down, BUT if we get a 1000 point Dow selloff on a given day we are likely to see some damage to income issues as the nervous nellies exit the markets and are satisfied to sit on the sidelines to earn 2-2.5% on their cash holdings.

As we mentioned 2 weeks ago if an income investor is selling anything at this time it would be good to gather a bit more dry powder simply to have available if we get that 1000 point Dow down days which creates some bargains in the income arena.

Don’t forget that an easy way to watch damage to preferred stocks is on this page which lists issues from highest daily loss to highest daily gain.  This page has turned out to be one of the most popular pages on the site.  When looking at this page one would be wise to not the volume traded as some move sharply on maybe 100 shares traded.  A better indicator of the move lower is higher volume.

31 thoughts on “Stocks Set to Move Sharply Lower”

  1. Will be interested to see how GDP factors into the market. A higher than expected GDP may accelerate market declines on the belief that this will more likely cause FED to increase rates. A lower GDP may have just the opposite effect.

    1. Yes SteveA- we will see if it moves these interest rates solidly above 3.2%.

    1. Yes–good move. I have almost 2,000 shares of KYN-F and am looking at a number of others maturing in the next 24 months or so.

      1. Tim,
        Could you name some of the other tickers besides KYN-F maturing in the next 24 months that you mentioned? What about gdl-c? Thx!

        1. Hi eithi–yes GDL-C is one–also GGO-A–both are puttable in the near future.

          GGO-A is here.

          https://innovativeincomeinvestor.com/security/gabelli-go-anywhere-fund-5-puttable-preferred-stock/

          LANDP is due in 9/2021–Gladstone Land.

          Sotherly Hotels–SOHOK–baby bond in 2021.

          I own all 4 of these issues.

          Others I am starting to look at are–

          General Finance baby bonds–GFNSL–2021
          Scorpio Bulkers baby bonds–SLTB—2019
          Scorpio Tankers – 2 baby bonds–SBNA and SBBC–2020 and 2019
          Seaspan–as mentioned by Mr Lucky–SSWN–2019

          A lot of these are kind of junky which I normally wouldn’t own–but would for short periods of time.

          All this info is on this page–

          https://innovativeincomeinvestor.com/short-medium-maturity-income-issues/

          NOTE–some of these quotes are not working very well.

          1. Tim,
            A quick check on the financials of General Finance made me cringe. Negative earnings for the past 3 yrs according to yahoo finance. They also have a 9% pfd stock offering out there with some very harsh penalties for GFN if they goof up the payments. Interesting, but definitely speculative.

            I took out a new position in SSWN today. Seems to be a safer bet for my tastes. Thanks for sharing the info!

            1. SSWN’s maturity is 4/30/2019. Current yield is nice. I cannot match with my calculations the current yield shown in brokerages. Perhaps someone can point out what I am doing wrong in following.
              XD was mid-Oct so there are 6.5 months left of earnings. If share price is above par by a delta (i.e., 0.15 if share price is $25.15), then effective income I will receive per share will be :
              Income = (25 * 0.06375) * (6.5/12) – delta
              Yield will be:
              Yield = ( Income * (12/6.5) ) / (25 + delta)
              If I bought SSWN today at a share price below, my calculation gives the following corresponding yield:
              25.05 – 5.994 %
              25.10 – 5.614 %
              25.15 – 5.236 %
              25.20 – 4.859 %

              1. Hi aarod,

                I am certainly no expert but it looks like you are trying to compare CY with YTC, which is comparing apples to oranges. Or have I misunderstood your question?

            2. Yes G–a lot of them make a super conservative like me cringe–but almost without exception most will redeem their debt on maturity. So for me the closer to maturity the better–less risk as one is able to predict out a year–while longer periods (day 5 years to maturity) are pretty dicey to believe any of us know what the junkier companies will do–or if they will even exist 5 years out.

    2. Lucky, thanks for posting SSWN. Great short term place to park some cash with no known downside in sight. I also own a chunk of KYN-A as well as IHIT, which is another good parking spot with a dated return of cash.

      1. I have been adding to IHIT around the $9.94 level, agree it is a good place to hold cash for the short term.

        Yield at current stock price of $9.98 ( assuming liquidation at $9.83 in December 2023 ) is about 5.5% ( I’m too lazy to do the math ).

  2. I spotted in Schwab today under new issues:
    Deutsche Bank Aktiengellschaft Medical Terminal Nts
    coupon 3.75% fixed, pays semi-annually; non-callable; 2 yrs
    settlement date 11/1/2018; maturity 11/1/2020
    S&P: BBB- ; Moodys: Baa2
    May require min investment of 25K

    1. There have actually been a good number of $1000 par issues go recently for short to medium terms, generally better than what’s been offered as exchange traded products.

      I know the focus here is on the exchange traded products but one shouldn’t limit himself. If you like F2F in this environment look at 174610 AQ8.

      PS – when discussing non-exchange traded debt, please include a CUSIP.

      1. I love the $1000 par issues Bob. I currently own three of the preferred issues and a dozen of the shorter maturity corporate bond issues. The one you reference is a Citizens Financial issue. An ok regional bank. Their larger than average reliance on student and auto loans is of some concern but still, a decent yielder. I’ll take a look.

  3. Thanks Tim!

    With CDs around 3% and treasuries at around that maturity paying >2.8%, I guess the trick is to buy these pfds at the right price, otherwise you end up earning less than the 2.8%. Besides, if they are callable, if you pay above par you can even lose…
    (e.g. SOHOK, I would buy it only <<$25.3, and today closed at 25.81).
    Another consideration is taxes, if you use a taxable account and you are in a state with state taxes (treasuries are state tax free), need to compare this with the pfd if it is qualified or not, etc.

    My conclusion: there are no free lunches (usually).

    p.s. Thanks for your website, I find your posts very useful, and I also find many of the comments valuable (as opposed to other sites where I do not usually trust most of the posts). I hope this "high quality community" continues .

    1. Hi Daniel–not many free lunches and yes you need to buy them right to get the maximum ‘yield to maturity’. Taxes I don’t worry about myself as a huge portion of our holdings are in IRA’s–so qualified etc doesn’t matter.

      Yes the community is a great group of folks from which I learn a lot. We only had one bad apple and I banned him pretty quick.

  4. General Finance is soliciting consents to incur additional indebtedness to those of us us that hold the 8.125 preferred shares. Paying .10 per share if we agree. Is this just a formality and it is usually accepted? I am thinking of declining but have never had this presented to me and need some opinions.

    1. What a finish! Fortunately, I own NO common stocks except for a couple of BDC’s and REIT’s. I am 95% in preferred, CD’s, Individual Cooperate Bonds and Baby Bonds. My portfolio was down only .005% today. I got out of all my individual common stock positions last spring and I’ve stayed out. Never going back. I’ve become very conservative since I retired and on days like this I feel vindicated in having gotten pretty much out of the market. I wonder what tomorrow has in store ?

    2. Ray, they may have “big guns” in place with the shares to run over you anyways. That being said one would have to know the plan and their detailed financial structure to guess the risk being incurred. As a preferred in general as you well know, the more debt stacked above you, means more risk to preferred payment.

    3. Can you clarify exactly what they are asking you? I opened up a very small position in the 9% preferred’s today by General but from what I think you’re saying, they are looking to issue more preferred’s, thus driving down the existing prices out there today?

      1. G, based on Tims link, its in reference to the debt holders of the 2021 note. Strike my previous comment as I assumed ( wrong, lol) it was in reference to action from preferred holders.

        1. Sorry for the confusion when I said Preferred rather than notes. I guess I will agree to it. As was noted, my measly 400 shares wont make a difference anyhow. Thanks for the replys.

          1. rayaboz–not a problem. Many refer to baby bonds as preferreds, but of course they have many differences the most important being position in the capital stack.

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