Time to Keep Searching for Bargains–Carefully

With the selloff yesterday in most equity markets and todays weakness it is a good time to add a few shares here and there when they fall. Don’t get carried away, but a little here and a little there.

This morning I added a few more shares of the AllianzGI Convertible Income Fund 5.625% perpetual preferred (NCV-A) which is now down $1.30 on the day trading around $23.50.

Right now I am sticking to adding to what I already own in the utility preferreds and baby bonds and the CEF preferreds that are investment grade.

I am going to stay away from mREITs and Lodging REITs for now. This is obviously where the big gain potentials lie–but if they go broke there won’t be any gains at all. I bought some shares in mREIT New Residential 7.125% perpetual (NRZ-B) a day or two ago–but I could have bought it cheaper today–itchy trigger finger I guess.

I await ‘good news’ on the Covid 19 crisis before getting carried away and while I am slowing buying there is no use buying up dry powder until we can guess some good news ahead–and honestly there hasn’t been much good news, but we can reliably predict deep pain ahead.

49 thoughts on “Time to Keep Searching for Bargains–Carefully”

  1. I wondered why some MLPs were surging

    Pres. Trump tells CNBC he spoke to Russia’s Putin and Saudi’s Mohammed Bin Salman and expects the two countries to announce a 10M-barrel production cut and potentially a 15M-barrel cut.

      1. Tim, I agree those numbers are just too big. I mean Saudi has the spigots wide open at what 12 million… So they and Russian are basically going to close the taps….So the US production can benefit?

        1. Grid – you are missing the big picture. The price war is helping no one – not even the Saudis and Russia. The cuts would come from every OPEC member – and while it would be highly unusual, I would not be surprised if Pres Trump pledged corresponding US cuts in production. These are unique times

          After all, with demand way down – and most countries having to sell oil below the cost to produce, no one benefits

          1. Maverick, the only way I am missing the big picture is if Trump nationalizes our oil fields. Every company that pumps oil out of the ground in US has the right to pump as they see fit.

            1. In normal times yes Grid – but these are not normal times. if the Feds and states can tell industries to shut down and people to stay home – I don’t doubt the Feds can tell US oil companies they have to throttle back on production for a temporary period of time

              At this point, all normal thinking is out the window – so I would not be surprised at something like this

          2. Maverick, I totally get what you are saying, but that part is irrelevant. The President cant control US production.

            1. Before this becomes an all out food fight… He may not be able to control production – butt – he can tariff the hell out of foreign oil as has been discussed or try and forbid US refiners from refining foreign oil. I would be all in favor of banning the importation of foreign oil save for the fact that this would cause others to ban our exports and so the circular firing squad begins again.

          3. While intriguing, how do you suppose Trump could cut production in the US? Nationalize the oil companies? These are all private companies, and I do not see a path to force them to cut without causing even more problems – more unemployment, more bankruptcies, more time to get oil flowing again once we do recover. I’m clearly no expert….. I do think that some companies may curtail on their own to some degree. Better to leave assets in the ground if they can, rather than spill over the storage capacity.

            1. Mark, some companies are dead man walking anyway. But some debt structures are such they need cash at any cost to service debt. So they will pump and pump for the cash flow even if it means big GAAP losses.

            2. I am no lawyer nor governmental expert – but I suspect this could be done in a number of ways:

              1. Simple logic – you run the risk of bankruptcy if you don’t
              2. Simple persuasion and waving the flag in a time of crisis – if they get a number of companies comply, you don’t want to run the risk of being outed as the outlier
              3. More direct persuasion – comply or risk being deemed a non essential business and forced to shut down
              4. Under the guise of National Security

              I am sure there are others. All I am saying is lots of things have happened recently that no one could have ever imagined, so you have to think outside the box as to the possibilities. Also have to remember Pres Trump is a dealmaker by nature – so cutting a deal would be in his nature

              1. Some oil experts were on tv saying no way Russia/Saudi Arabia would in effect cut 50% of their collective production. But Russia is already struggling to find markets to sell to now. With storage all filling up quickly with collapsed demand the problem may take care of itself in a month or so when there is no where to store it. Interestingly they stated for many companies its cheaper to keep the oil pumping at a loss than capping a well. There is no spigot to turn off like a water faucet. It is prohibitive in cost to cap a well.
                Interesting stuff anyways.

      2. Just reporting what was out there. That said, not sure it is pure BS. The Saudi’s have called an emergency meeting of Opec+


        Logic would say everyone is getting crushed by the OPEC price war – including the Saudi’s and Russia.

        Add in massive reduced demand due to countries shut down, and everyone has an incentive to end the price war. Does that mean they will, not necessarily but when it is hurting all of them, sometimes sanity does prevail

    1. He said in the news conference yesterday that he would participate in the phone call between them and that he knew how to solve the problem. He implied that either they would solve it themselves, or there was some step he could take which would solve it, and he seemed pretty confident of it.

      Apparently they have agreed to cut back production, but the president indicates he will watch and see if they carry through with the pledge. I would be very curious to know what leverage we had here that got them at least saying the right things.

      1. American refiners will have to prioritize the purchase of American crude. We cannot let our industry be destroyed, which is exactly the outcome Russia would like to see.

  2. Carnival Cruise is offering $3Billion in senior secured bonds with an 11.5% yield that matures in 3 years. Sounds enticing , but if the company defaults do the bond holders get ships that they have to pay docking fees, maintenance, insurance, etc? Perhaps it could wind up being worse than inheriting a timeshare.

  3. OPTIMISM ON A BAD DAY ON WALL STREET: Public officials like Dr. Fauci are finally realizing what Hong Kong citizens realized FACE MASKS ARE CRITICAL (4 deaths among 7.3 million people ) Singapore citizens one death among 5.7 million citizens, Taiwan less than 40 deaths in a country of 24 million people, Bosnia and Czech Republic mandating face masks in public, Austria mandating face masks in stores.
    Yes, even Mayor Eric Garcetti in Los Angeles calls for people to wear face masks, If people wear masks there droplets won’t fly into the faces of others causing covid virus outbreaks of large numbers. Smaller case load equal better care for those infected and higher survival rates.
    There is hope when leaders look at those who have been successful wherever in the world they are.
    This market can come back if prompt action to mandate face masks is implemented as is the case in Hong Kong, etc.

    1. I agree with you completely. And, without intending to be political at all, would it not have been nice, before spending $2 trillion, that we spent money to: 1) Send a face mask to every person in the country and enlist companies to produce them posthaste, and 2) Require everyone in the country to be tested for the virus (do so without requiring any red tape that would deter people from accepting the free test)? I understand this is overly simplistic, but Hong Kong and South Korea offered similar programs and seem to have successfully “managed” the virus. For emphasis, I am not opposed to helping businesses and people in SOME of the ways the stimulus intends. But “defeating” the virus quickly should be the first order of business and there seems to be much to learn from countries that have achieved some success.

      1. Shortage of original test kits.
        One company in the world makes the swabs and they are in Italy with a patent.

        Closing borders last November would have been the easiest and most effective thing to do.

      2. Just a quick comment that the countries you state handled this better have very different cultures, population, governmental structure than the US.

        In those countries, given their proximity to China and recent other pandemics coming out of that country, wearing a mask daily is a normal thing. And those cultures have surrendered more of their civil liberties than in the US. You could not implement successfully a number of things those countries did (such as the mandated cell phone tracking and monitoring).

        Hopefully the measures we are implementing here are successful and until then, hopefully the Economic Rescue Plan helps where needed

        1. A lot of their response is muscle memory due to recent pandemics. We were starting from scratch. The FDA and CDC were awful, but that would be the case no matter what because it is what they do — be awful.

          Nearly everyone in the US already has a mask, and they are just cloth so you can make something easily enough. The perfect should not be the enemy of the good. Every bit helps get the transmission rate down. The Asian governments lied to their people too about the efficacy of masks during previous outbreaks so they were ready. The “expert class” across the globe is uniformly terrible.

  4. Anyone think we will see muni bond defaults, especially in blue states like NY and CA? There seems to be some real deals out there.

    1. I would expect to see muni bond defaults in the oil-patches first, such as parts of Texas, North Dakota and Marcellus shale areas of PA, especially after July when property tax bills are due.

      1. Good point. I sold all muni bond funds, even the Pimco funds and put that money into preferred.

    2. I bought some Munis in my home state of VT back on 3/20 as I could not believe the drop in prices. That has not repeated itself although it went in the right direction yesterday. Living here and knowing our government I am comfortable with the risk.

      I’m not sure the color of the state matters. As noted local dependency on a commodity like oil is another story altogether. I have kept my purchases to VT and MA.

      1. I too live in VT I may have to look into this.

        How do you buy specific VT muni bonds?
        How are the coupons paid? I have only owned bonds through ETFs.

    3. invest in muni’s in state you feel comfortable with. As for the world’s 5th largest economy, Its taxation without representation. If they have to find creative ways to pay bond obligations they will its better than default and losing ratings.
      States that are the first to deal quickly with this problem will be the first to recover, If using examples of whats happening around the world in other countries.

  5. Back after a day of work. Again I think we have more bad news to come as Tim has mentioned about company earnings not yet showing the damage. This will be amplified in the coming months. One branch manager for a national roofing supply company headquartered in Wisconsin said Jan. and Feb. 2020 was up compared to 2019 , was good thru the first 2 weeks of March then ended the month 50 % down .He expects April to not even register on sales. With common stock prices still double the recession of 08 I expect to see them fall in the coming months along with the preferred. I can wait if a dividend gets suspended, but Chuck has a good warning to watch the non cumulative preferred.

  6. To “mcg”; I fully agree with you 100%. Price matters!!!!!! Right now there are many exceptional bargains available again. But like I said earlier, thats assuming these companies don’t just skip the non cumulative dividends all togethor. The landscape is changing very fast. Iam seeing people lose their jobs like never before from all walks of life. What happens after this $2.2 Trillion package runs its course. I have 2 kids that are very concerned if they will even keep their jobs. Both have great credentials with college degrees but right now that is of little value.

    1. Question about the wash rule: If someone sells their common and quickly replaces it with preferred issued by the same company, is that a violation of the wash rule.? At this point I’m thinking of swapping my NRZ common for the preferred. It’s in a taxable account and I’d like to book the tax loss. Trying to turn lemons into lemonade.

      1. Common and preferred are definitely supposed to be ok. One preferred or bond Issue to another is iffy.

        1. I don’t agree that its iffy. Different cusip, different terms, different security.

  7. I’m holding off on buying today. I feel like we have a lot lower to go.

    Highest rate of US employment ever was 24.9% back in 1933. The Fed is expecting 32% for Q2.

  8. T-C nibbled to add some today in mid-$20s. Low coupon but yields 5.6%+ and safer than small financials or REITs.

    Considering one more trade in WFC-Q (buy $25)

  9. I bought some NNN PRF and added to my PSA PRE a week or so ago. Even with today’s massacre, they’re both up from cost basis. While YsOC at 5.22% and 5.92% are not that impressive, I’m happy with the quality of both.

  10. Hi Tim; Thank You for your “speedy reply”. Seriously, right now there are many many high quality preferreds once again getting thrown out the 8th floor window with the baby included. I could easily give you 8 to 10 names that will be survivors. Yes, I know the market is in serious trouble but what a person has to ask themselves is this: “Will this company survive and be in business in 3 to 5 years”??? No one at this point in time will get a 100% guarantee but most likely if its truly a great company it will be a survivor. I over the last 2 weeks and done some very serious rebalancing and reshuffleing to make sure my money will be a survivor. Even bought 120 shares of “AAPL” a few moments ago. The common.

  11. Many many high quality preferreds back on sale again today. They had disappeared on monday and tuesday but today they returned with a vengence. I bought 3,000 shares this morning at 8:35 of JPM+C and also added to my position of PNC+P. Many other high quality preferreds back on sale as well. If you want more names just ask. And “again” I do wish there was a way to send PM’s on this site.

    1. Chuck P–I hope sometime in the future private messages will be available, but it will require a whole new commenting add on so nothing can happen right now–too much ‘real work’ (my real job) to do.

      1. Hello Chuck and Tim
        Why send PMs when all of us are like family in this trading world? We learn from each other, yes?

        1. I agree.

          FWIW…I learn quite a lot from reading the questions that other folks post here and the ensuing discussions that follow. It’s one of the most valuable features of this site. It would be a shame, IMO, if some of that back-and-forth shifts to a PM system.

      2. AATRL is down this morning. Overall still waiting for good quality commons to show affects of what will be a heavy economic slowdown. Example TGT still double what it was in 08 and 09 others too.
        Today 6 bay area counties put more restrictions on construction building. See if this spreads to the rest of the state or across the country.

      1. To Irish; JPM+J has a coupon of 4.75% and JPM+C is a 6% coupon. So for atleast me I like the bigger coupon. At the open this morning JPM+C opened up very much down and then bounced back later in the day. I got filled early. But there NOW are plenty of bargains out there. But I who usually try to remain very optimistic have now gotten extremely concerned as who’s going to be able to survive all of this continual “Onslaught” of bad news. Where Iam going with this is this: Look at all your preferreds and look up how many are “NON-CUMULATIVE”. That is now starting to really concern me. Car dealers, Hotels, Cruise Lines, Casinos, Advertising Agencies, All of Retail, Movie Theatres, NOBODY BRINGING IN ANY REVENUE.

        1. Hi Chuck,
          While JPM may be making money still (I don’t actually know that as I do not follow them), it’s preferreds are NON-CUMULATIVE, whereas RLJ-A, a lodging company, it’s shares ARE cumulative. Just saying… I know, I’m cherry picking (cherry tomatoes, that is, as I think I may be allergic to actual cherries.) 🙂

          Also, I cast my vote for NO private messaging. Without all the discussion, this site becomes diminished to a handy place to look at preferred and baby bond prices. Not that I know much, but I would know a lot less without all the back and forth discussion. While I’m sure discussion would still take place, I would wonder how much “behind the scenes” stuff I am missing out on. I feel that this open format is one of the greatest strengths of this site.

          This is a good opportunity for another shout out to Tim (and Matt) for your countless hours in keeping this site the most useful investing site on the internet for me. Thanks!

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