Up, Down, Up — Mid Day Rambling

We thought the rally in stocks yesterday was kind of a ‘fake out’ and it is turning out to be just that.  We had some gains yesterday, but 50% of those modest gains have evaporated thus far today.

As we mentioned we have been waiting to buy some bargains with nothing bought last week and none this week.  On Monday a bunch of seemingly bargains were created – then they bounced yesterday – but they have fallen again today.  There just isn’t too much of a rush to get into the marketplace.

We have plenty of dry powder laying in money markets–but earning 2.26% in the Gabelli US Treasury AAA-(GABXX) or the Fido Ready Reserves we can certainly drag our feet a bit longer.

Today we have shippers off–but by and large they are retaining some of yesterdays gains (in particular Seaspan).  It is funny today to see some of the insurance companies off quite a bit–Enstar and PartnerRE.  The 7% Landmark Infrastructure Partners fixed-to-floating preferred units are off 79 cents on 8 times normal volume and trading at $19.01 for a current yield of 9.21%.  All of the CHS preferreds (5 issues) are off today giving back some of yesterdays gains and all are trading with current yields of 7.17% to 7.80%.

So with the DJIA off 572 as I write this I sit back and watch–no real hurry is necessary.




81 thoughts on “Up, Down, Up — Mid Day Rambling”

  1. Fingers crossed this recovery holds. Went from -6.5% since end of Sept. to -3.5% in one week, crazy stuff. I did add the remaining 30% of my portfolio last week, so that part is all green.

    1. Hang in there Tech Guy. People pay a lot of money to get college educated and it’s free lessons right now. Reminds me of Feb 2015 so far and hopefully it settles the same in the end. I saw a bunch of gibberish Tim sent you and am glad you asked him for it, thanks for that. I gave it to my nephew in Seattle who is a programmer. I get overwhelmed with too much data and Tim has a lot which is great but not all for me. Nephew said he would simplify down what I want to fit my brain.

      1. Hi P–did you like my gibberish? The problem with the javascript etc that I use is that I simply tinker until I get it to work–I don’t know how it works–so when someone asks how I get them I can give them the data–but can’t give any reasoning about how or why it works.

        1. I only upgraded from my flip phone a couple of years ago but I could hook you up with my nephew if you ever get stuck. He went to college on gibberish and is a geek for some software company and customizing programs. I do love your site and all the data even if it overwhelms me.

          1. The biggest problem I have is I know what ‘I’ want to do–but can’t always convey that to the geeks.

          2. P….I have you beat. I just upgraded from my ten year old flip phone one month ago! I feel like I have arrived and am now part of the in crowd with my smart phone. I just find it annoying when it seems to be smarter than I am.

            1. Amy–it took me a while to figure out the ‘smart tv’s’. We now have 5 in the house and I was amazed that as I wandered the house early in the day every tv I turned on knew what I wanted to watch–amazing technology–but a bit scary on the other hand.

  2. Would someone kindly recommend a favorite book of theirs for preferred/ETD investing? And in the same vein how is Le Du regarded by this group?


    1. He wont hurt you Mikeo. But nobody does better than Doug at providing you free info everywhere on internet and then charging for it…Why was I so dumb that I couldnt have thought of that business model?

      1. Grid,

        I do agree with your comments but for a newbie, his database….the way he has it laid out…. can be very helpful until people learn to navigate the other sources.

        Also, people find his screening tool very helpful but I never used it.

        1. Amy, We can also agree Doug cant hurt your wallet like half brained dumpster divers like Rida and Richard can on SA…Oh and Bradley boy was recomending buying KIM for the zillionth time since he first recomended it at $28 a couple years ago. He is like a dog on a bone with that loser. But just try to get him to publically post again his near $30 reco, lol.. Took my small sell gains today and added to ALLY-A…My one unsafe indulgence….

    2. Hi Mikeo,

      When I first got interested in pfds in 2015, I joined Doug’s service but I only used the Companies tab for his database. I didn’t pay any attention to his “recommendations.”

      I also joined his service because he claimed to have an alert service for IPOs which turned out to be a joke. Days late …..very slow. I nagged him about it ….. telling him that Tim and silicon investor were much faster on the draw than he was but he didn’t do anything about it so I finally quit his service after two years.

      I am a member of another small group with many members interested in Doug’s service so I wrote to doug again and said that he would get a lot more subscribers if he got on the ball and sped up his IPO alert service – which he did….. as of one month ago.

      With this small group, I’m only paying $62.50 for Doug’s service as a group rate which is worth it to me for his Companies tab/database. I use quantum online a lot but I like doug’s database better with all preferreds for a single issue are on one screen. It is much more convenient than quantum online.

      1. Mikeo,

        Doug’s single rate is $195 per year. Since you are new to preferreds, you may want to consider joining for a year for his database. I have no regrets for doing so for the first two years I was diving into preferreds. It was well worth the money for me….. simply for the convenience of his Companies tab.

    3. Mikeo, I would recommend a book called Cash is King by Simon Wadsworth. However, the focus of the book is just on REIT preferreds. The book must be out of print as new copies are expensive, but you can still pick up a used copy on Amazon for about $30.

    4. Hi Mikeo, et al,
      I read these books when first learning and each of them provided some small tidbits, although none of them seemed to provide everything I wanted:
      Preferred Stock Investing Fifth Edition Doug K. Le Du
      REIT Cash is King Simon Wadsworth
      Preferred Stocks The Art of Profitable Income Investing Kenneth G. Winans
      Investing in Preferred Stock 2nd edition An intro… Paul Josephs
      They were all available on Amazon, but let me know if you have any trouble finding them.

      The most important info I got were some tips on ranking a company’s financials provided by a generous contributor on Seeking Alpha:
      1. Weighted average of net income over the last three years should be four times the annual preferred dividend payout.
      2. Total annual common dividends should be four times the total preferred dividends.
      3. Market cap should be four times the preferred liquidation cost.
      Much of this info is available through the company’s reports on the SEC’s EDGAR site. I can provide more detail if you want.

      I created my own spreadsheet calculator to show all the particulars and calculate current yield, YTC to YTM (if not perpetual). It took some time to get my yields (using XIRR) and Excel’s YIELD() function to match.
      If using YIELD():
      1. Use stripped price.
      2. Normalize stripped price and redemption price to $100 par value. (Multiply both by 4.0 if $25 redemption value)
      3. Determine the effective yield by using EFFECT() around YIELD() and using 4 payment periods (number of periods for most quarterly-paying issues
      ): =EFFECT(YIELD(…),4)
      YIELD() in Excel is not annualized. To compare it directly to XIRR() one must find the EFFECTIVE interest rate using the EFFECT() function.
      Doing that makes my XIRR() match the effective yield to within 0.01% for short terms and to within ~0.1% for 40 year terms, even for irregular payments. Those errors are well within my confidence levels for decision-making purposes.

      If using XIRR():
      1. Use full purchase price, not stripped price.
      2. Include all cash flows as shown for BAC-K below:
      Date Change ($) Transaction
      12/29/2018 -$24.83 Purchase
      10/24/2018 $0.0000000 Dividend
      1/24/2019 $0.3671875 Dividend
      4/24/2019 $0.3671875 Dividend
      7/24/2019 $0.3671875 Dividend
      10/24/2019 $0.3671875 Dividend
      1/24/2020 $0.3671875 Dividend
      4/24/2020 $0.3671875 Dividend
      7/24/2020 $0.3671875 Dividend
      10/24/2020 $0.3671875 Dividend
      1/24/2021 $0.3671875 Dividend
      4/24/2021 $0.3671875 Dividend
      7/24/2021 $0.3671875 Dividend
      10/24/2021 $0.3671875 Dividend
      1/24/2022 $0.3671875 Dividend
      4/24/2022 $0.3671875 Dividend
      7/24/2022 $0.3671875 Dividend
      10/24/2022 $0.3671875 Dividend
      1/24/2023 $0.3671875 Dividend
      4/24/2023 $0.3671875 Dividend
      7/24/2023 $0.3671875 Dividend
      7/24/2023 $25.00 Redemption

      XIRR 6.47%
      Net Cash Flow $7.15
      Yield 6.47%

      Lastly, I’m kind of an analysis lightweight, but I do consider a company’s financials over the last five years to look for solid trends, and most importantly the ROIC, ROE, ROA and Net Margin to avoid disturbing trends. AMH, for example has been a topic of interest on here recently and when I look it over I see:
      1. Negative net margin since IPO in 2012
      2. Low or negative ROIC since IPO
      3. Negative ROE since IPO
      4. Negative ROA since IPO
      They are also raising money by increasing the share count every year, although the trend in NI over the last two years is encouraging. I believe if a company has low or negative returns (ROIC, ROE and ROA) that will eventually show up in dividend coverage. I do not risk any money for long terms unless I’m appeased by all the above considerations.

      I hope this helps. More importantly perhaps other readers will share the analysis they use before deciding t trade a particular issue.

      1. Interesting Bruce…Never used that specific criteria..I guess my biggest holding based on your criteria is pretty safe (AILLL)
        Using the value of all the company’s (AEE) preferreds here is the breakdown.

        1) Weighted net income (4X)…AEE preferreds ~100 times coverage
        2) Common dividend 4 times amount of preferreds… AEE preferreds 82 times
        3) Market cap 4 times liquidation cost of preferreds…AEE preferreds about 125 times..
        Based on your criteria my AILLL looks pretty safe to me. 🙂

        1. Yup, definitely a nice one Grid: nice yield, investment grade, solid financials… I’m just too timid to jump that high above par to enter. And it looks like the trading range has narrowed recently, reducing its flipping potential.

          In your opinion, what might precipitate its call? Thanks, as always, for your thoughts.

          1. Bruce I used to flip this one a lot. Then told a few wealthier older guys online who were seeking safe reliable income and over past couple years and they gobbled them up. One guy has built up a near quarter million in it. The old float is only 12 million and largely institutionalized to begin with, so now it really doesnt trade much.
            On a safety basis its unmatched because AEE has no interest in issuing preferreds. In fact these are just old ones assumed by the parent and were not redeemed when the companies were acquired. They just changed the names of the preferreds to match new name of company. I have owned for almost 6 years now. My take is they will never be called, or every series will be redeemed at the same time since the floats are so small.
            Since so many decent issues have dropped in past 6 months (and AILLL hasnt and wont much) the relative value isnt there as much. As you know one can find decent quality plus 6% now without having to go $1.50 over par past call to get it. I would just put it on a watch list and wait for a better entry point. If it doesnt happen, life will still be fine without it. 🙂
            What I like about your criteria is it quantifiably exposes dirtbag preferreds such as LTS-A and MTBCP. I didnt need another reason to never buy them…But I got another one anyways now, ha!
            Generally I just follow the bond ratings, slot 2 notches below senior unsecured and make sure they didnt issue an assload of preferreds to hide debt…And make sure they arent serial issuers….Like LTS and MTBCP does for example on both counts…..I also dont like new companies and new companies issuing new preferreds either…And I have a slanted bias to regulated monopoly utes with captive customers that have to pay. Price entry point is always the concern for me being my biased towards higher quality illiquids.

        1. Bruce, I knew it wasnt Rida Moron….I just busted him when he gave his top 2019 pick. Somebody asked if he had a 2018 or 2017 pick…He said he didnt but then mentioned his 2016 pick was up 50%. I smelled BS, and saw he had SKT as his 2018 “Top Reit Pick”…Oh and its price is down 21.92% YTD. Ya I would forget that too….And AMID, and CBL, and CBL preferreds, and 2X leveraged notes, and Buckeye…..What a wallet destructor!

  3. Does anyone know what they plan to replace the LIBOR with in 2021 (phaseout date)? With these preferreds tied to it, how will they reprice I wonder. Thanks for insights!

    1. Debbie, that is an individual prospectus issue, not a global issue. Each prospectus has a “back up plan” and they all vary. Here is an example from ALLY-A….Just remember before you read this…You asked for it. 🙂
      If such rate does not appear on Reuters Screen LIBOR, three-month LIBOR will be determined on the basis of the rates at which deposits in United States dollars for a three-month period commencing on the first day of that quarterly interest period, as applicable, and in a principal amount of not less than $1 million are offered to prime banks in the London interbank market by four major banks in the London interbank market selected by the Calculation Agent (after consultation with Ally), at approximately 11:00 a.m., London time, on the LIBOR determination date for that quarterly interest period. The Calculation Agent will request the principal London office of each of such banks to provide a quotation of its rate. If at least two such quotations are provided, three-month LIBOR with respect to that quarterly interest period, as applicable, will be the arithmetic mean (rounded upward if necessary to the nearest whole multiple of 0.00001%) of such quotations. If fewer than two quotations are provided, three-month LIBOR with respect to that quarterly interest period, as applicable, will be the arithmetic mean (rounded upward if necessary to the nearest whole multiple of 0.00001%) of the rates quoted by three major banks in New York City selected by the Calculation Agent, at approximately 11:00 a.m., New York City time, on the first day of that quarterly interest period, as applicable, for loans in United States dollars to leading European banks for a three-month period, as applicable, commencing on the first day of that quarterly interest period and in a principal amount of not less than $1 million. However, if fewer than three banks selected by the Calculation Agent to provide quotations are quoting as described above, three-month LIBOR for that quarterly interest period, as applicable, will be the same as three-month LIBOR as determined for the previous interest period or, in the case of the quarterly interest period beginning on February 15, 2016, 0.29000%. The establishment of three-month LIBOR for each quarterly interest period, as applicable, by the Calculation Agent shall (in the absence of manifest error) be final and binding;

      1. Gridbird, you had me on the floor LMAO with that quote on the prospectus plan B! Thanks for the reply, I think I can trust the replacement to make sense. Best of yield-hunting to all for 2019!
        A question to all: any ideas on foreign sovereignty debt issues that might be positioned for rate decreases?

  4. Right now, the personality mindset that gets somebody a job in DC is to be somebody who is strong. That definition has been “perverted” to mean not easily letting data change your mind.

  5. Did some bottom shopping by selling some put option contracts. If it dives that low I pick up a dividend aristocrat at 8.1% dividend… if not I keep the $54 bucks they gave me… I win either way.

    1. Haven’t done any put selling in the last 6 months–going to put it on my new year resolution to get back in there.

      1. Some great days for selling puts on dividend payers. Sell BA 1/25/19 @ 280 for $5.25.

        1. Just me but I’d like a bit (hell, a lot) more clarity on China trade. I believe new negotiations begin around Jan. 7. You’re probably fine if they don’t end in a fist fight. Still in the 90 day period – for what that’s worth.

    1. Time to get the damn machines unplugged—every few years when this silly damned machine trading kicks in the retail investor gets the hammer and heads to the back yard with a Mason jar and their moola and buries it deep.

      1. How highly frequency trading got away without being labeled as inside trading is totally corrupt. They are examing trades before executed. Is that material? Yes. Is that information available to public? No. Are you using this information as the primary reason to execute a trade knowing what futures trades will be? Yes

        They belong in jail.

      2. Truth is that front running, in all its forms, has been the bread and butter of Wall Street for more than a century.

  6. To add another insult to injury stocks come back preferreds not!
    Ok next time I will buy crude oil futures instead spending precious time to carefull read the financials of LNG shippers. At least they are liquid!

  7. I bought Thur-Fri-Monday and raised cash. I’m pretty much sitting on my hands now unless we get another good drop. AGRIP traded 100 shares today. I owned at $99 since IPO and still like it.

    1. P, what brokerage did you purchase them through? I have been shut out there as it is a 144a preferred.

        1. Its funny how some brokerages block certain issues. And sometimes one of mine will occassionally block an online trade when I have traded it before…I even had one preferred I bought online, that they wouldn’t let me sell it on line…Top that, lol…

          1. It’s because of what you trade. They have to send somebody down into the basement to look for a hard copy and sometimes everybody is busy.

            1. P, It was bad, I had to tell what to do to sell. I bought at $68 or so and I saw a bid for $75 a few weeks later. They blocked the sale and I had to call. They then said it doesnt trade and there was no bids or buyers. I told her I dont care what you see or dont see there is a buyer at $75. Put the sell order in and let me worry about the rest…It sold instantly…And yes it was a hard copy preferred…DMRRP issued in 1863, lol.

    2. Neither vg nor sch would allow an order on agrip. Both were correct, it is institutional only. If etrade let it through it’s sloppy compliance. Maybe I need an etrade account.

      1. A lot of variables on a 144a sale. To much to get into here but I assure you I bought the IPO, and I added more at a much later date. Talk to your broker about trading 144a. If he’s not willing to walk you through their procedures then you have the wrong broker. Not sure if requirements vary broker to broker. AGRIP was a good issue in my opinion although subject to call at the reset date.

        1. Yes, P, you have to be a qualified buyer, not necessarily an institutional buyer, so the broker is the gatekeeper…One friend I have pissed and moaned to TD and they opened up one, CBKPP I believe, to him this year. Vanguard and TradeKing had no interest in helping me and I had no desire to fight over it.

          1. Right. Once you are set up it becomes easy. There is also some things that can be done on seller side to open them up to non qualified buyers. Once that sale occurs, those securities are technically no longer legally bound but brokers don’t want to mess with it. I had Brownco back in the day and I got imported into Etrade on favorable terms because they wanted to keep all the business.

            1. P, you will like this…Tried the old “see if a fool pays yesterdays price after going exD” trick. It worked but only on a 100 shares. Recently bought KTN at 28.78. Sold the 100 at 29.49 and snagged the dollar plus divi. Plan on keeping rest but couldnt resist to see if it would work again.

              1. On a positive note I bought some PBC last week, thought it looked cheap. I doubled down Monday when it went 5% lower and flipped that for $3 this morning. On a less positive note I’ve had “approximately 11am” stuck in my head ever since your LIBOR post.

                1. Good trade, P. It has been some good flipping weather past few days. I flipped today all my IPL-D for 90 cents a share profit holding less than a week. I can get it cheaper again, I think.

                2. P, Just unloaded 500 shares of EBBNF at 18.85.. That was some easy quick money, too!. Still have a 1000 and plan to hold those long term.

                  1. Good flipping. Like somebody poured rocket fuel on it today. I like some pipelines too. I had a lot of CVB bought below face and I cried when that one finally got called.

                    1. P, I am just shooting fish in a barrell. I cant even keep up…Hell I just sold 500 EBBNF at 18.85….And bought all 500 right back at 18.20… Hilarious!

        2. Hi P–I checked my eTrade account and it let me place an order for AGRIP–I cancelled after placing as I just wanted to check it out.

  8. Still trying to figure out how on earth is possible the preferred issued by GLOP are trading at distressed levels when the credit spreads of the parent company barely moved! This must be a joke or the preferred market is less efficient than the fresh fruit market around the corner!

    1. Gabry,
      I am hoping it is just a good opportunity as I have been buying the GLOP-A the last few days as it dips below $19.50. I probably wont add any more unless it really tanks.

  9. Any opinions on the AHT preferreds? I have AHT-I, tempted to add but hesitant for some gut reason.

    1. AHT has too much leverage and hotels prone to more income volatility. If anything, go with PEB or RLJ’s pref.

    2. furcal–I agree with Hang–even for a lodging reit they have a ton of debt and not much equity–if/when we hit a recession they will be in the big hurt.

  10. Funny you should mention insurance companies – looking hard at PJH but like you say – no need to hurry. Sometimes today’s bargain becomes a better one tomorrow. And if I should miss it, there will be another.

    1. In terms of insurers. I Like RZA. Pays 6.3%, has held $25 for the most part

      BAA2 rated and it floats at LIBOR+4.37% (or 7.2% at today’s rates) in less than 4 years, so if rates go up in the future, you have some protection.

  11. Bargain shopping also, today: GLADD, JPM-B, BAC-W, and RILYL.

    Term dated and or IG is the theme here. Totally staying away from dumpster diving for high yield.

    1. This is a rhetorical question, no need to answer because none of us know.

      Are we in Fed Reserve Goldilocks land right now?

      10 year TBILL under 3% so they can can continue robust asset sales. Short term rates at low end of neutral with the markets undergoing a huge focus on corporate debt forcing an ultimate wind down of corporate debt. Where do corporations get the money (from the huge business taxes) to pay down debts? Tax cuts go to paying down debt not expansion so economy does not overheat. Economy still strong. Corporate profits good but not where market expected so stock market needs to adjust.

      Maybe, just maybe, our nightmare is the Fed’s happy land.

      1. SteveA–of course as mentioned I don’t know-but it would seem that we are darned close to Fed happy land. They need to watch that balance sheet and tweak as necessary from their 50 billion monthly runoff.

        1. In the grand scheme of things, do you think that $50 billion in runoff from the Fed balance sheet that material to the markets?

          1. The news conference comment by Powell that the runoff would be on “auto pilot” started all of this mess. If the January news conference does not correct this thinking then we are in trouble. Slimming the balance sheet is an indirect interest rate raise and is more powerful than the true rate hike. The big guys fear Powell’s inability to manage this part of the transition to higher rates.

            1. Marc, I slightly disagree with the timing of when Powell started this. His total arrogance in his October news conference when he said we had a long way to get to neutral actually started the fire. The “auto pilot” was the gasoline on the fire.

              New guys can make mistakes. Ben Bernanke did. But he learned quickly. Powell isn’t open enough to learn from anybody until he shows that he can look at data and have him change his mind

              1. SteveA

                I agree on the October comment and most were hoping for better guidance last Wednesday. Was listening to Bloomberg during the conference on the drive to Dallas and the room went silent on the “auto pilot” wording. Mnuchin gots lots of explaining to do too.

          2. On TV they tell me it is. But we have a flat yield curve, so Fed is running off at lowest possible yields.

            Let me advance a hypothesis – a larger amount of treasury sales drives rates up. We have never before in history that I know of been doing FED balance sheet runoff with the raising of short term yields. The treasury sales have this artificial demand in the market. What if we reduce the demand? The long end of the curve should drop. It is possible, the Fed already inverted the yield curve and the balance sheet runoff is hiding an inverted yield curve.

            This is one of the reasons, I have been and continue to Anti-Fed under this chairman. He showed stubbornness in his news conference. His leadership has been arrogant with 4 back to back rate hikes. The man is 1st Fed chairman who is not an economist. He needs to listen to the best economic minds in America and I don’t see him being an open/receptive person.

            All historic norms are in my opinion, lack some validity. We are doing something we have never done before

            Just one man’s opinion

  12. I have an twitchy buy finger when things are on sale but maybe it’s a good thing that I have no funds available for another next four weeks. Just sit back and observe. Owning a CD latter helps to quell the twitch.

  13. It is hard to not spend some cash on another down day. I was hoping to spend it all last week. But with all the drops, I have delayed buying and continue to nibble as things continue to drop. Bought THGA, UNMA, ACGLO, PUK-, LMHB. Still have some cash.

  14. Stopped watching the talking heads. Before Market open, they turned from pessimists to optimists. Right now, I’d guess they would be talking about testing and confirming the market lows. Both stock and bonds markets are broken. The money market looks great.

    We shall see what happens next week. .

    1. SteveA–ever since I got the ‘new low’ page, the ‘share loss’ page and ‘high volume’ pages I have them posted on one of my big screens and I don’t even bother with CNBC or FBN–they just irritate me anyway.

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