Wee!! Down We Go!! Bargains Appearing

Not a surprise to most of us here to see the DJIA off about 2,000 points this week–easy come, easy go.

We are back to a realization that the economy pretty much sucks–of course it does. The question is always what it will do in a few quarters?

Companies stepping forward and talking about the future–in a realistic way, are bringing share prices back to earth.

The airlines as well as the cruise lines have traded at silly prices–no matter the bounce back in traffic–a doubling from near nothing is still pretty much nothing. Delta (DAL) today said they were looking to renegotiate credit terms with dire implications if they were unable to do so.

Royal Caribbean Cruises (RCL) traded to $75 just a few days ago–up from $22 a month ago!! RCL has no business–today, next month and maybe a few months from now. RCL is carrying a $12 billion market cap–with no business—WTH.

These companies are again need to go to the debt market and their credit ratings are being lowered–i.e. they are screwed if this recovery doesn’t come off perfect.

In the markets we care about–preferreds and baby bonds we are seeing more red than we have for months. The air is being let out of many of the junkier issues. You can see the losers here.

All the crap issues such as the Ashford Hospitality preferred are off significantly. The AHT preferreds are off 25% TODAY. Almost all the lodging REIT preferreds are getting the wood put to them. This is true of the mREIT preferreds as well.

I am not buying–just watching the ride down. Believe it or not there are only about 20 gainers out of near 500 preferred shares today. Even the utility preferreds and baby bonds are off 1-3%.

Will there be even better bargains ahead for income investors? Everyone has an opinion–none of us know for sure.

33 thoughts on “Wee!! Down We Go!! Bargains Appearing”

  1. Huh- just realized Schwab, Fidelity, & maybe others now allow fractional trading- not sure if I missed it when shares began trading with no fee, or it is brand new. Saw the first ad yesterday for Fido.
    Good for those starting out, or just wanting to spend a whole amount of dollars.

    1. Sorry that wasn’t in the Sandbox. And there’s a wee catch- at Schwab, there are only 505 stocks available, so not general trading. It’s called Stock Slices.

  2. Did some bargain hunting on utility senior debt PPX – $25.4 and SJI – $24.7
    Wanted to buy CEF preferreds but didn’t much of a drop there, would love to buy them below par

    Bank preferreds dropped like commons, didn’t expect that big a drop there

  3. I read an story today about a business owner who is suing her long time commercial insurance company after they denied her claim for business interruption due to the covid-19 shut down orders in her state. The interesting part for me is the fact that her commercial policy has an exemption if the business interruption was due to a virus! It turns out a number of commercial carriers have added this virus exemption rider after the SARs virus scare a while back. The business owner is claiming the interruption was actually caused by the government shut down and not the virus, but I don’t think that argument will stand up in court. The insurer is Ohio Security Insurance, a private company.

    1. Exactly correct Citadel. It’s an issue of proximate cause. In this case, the proximate cause is the virus itself, or as some would say if taking it a domino further, the wet market from where it originated.

      1. Buffett may be right about the litigation George…it seems to me this business owner is making a specious claim in the hopes the insurer pays her something to go away. The only exposure I have to this phenomena are some baby bonds with Conifer Holdings, a commercial insurer. On their last earnings call in mid-May a Conifer executive stated that almost all of their policies had exemptions in place for virus and bacteria. Given the way 2020 has been unfolding, it would not surprise me to hear that commercial insurers have also added zombie and murder hornet attacks to the list of policy exemptions.

    2. The entire COVID thing is going to be a treasure trove of litigation and court decisions for a long time. From a purely academic point of view, it’s fascinating.

      Insurance matters are generally viewed as dull as dishwater but are anything but.

  4. This is sure one strange economy to say the least. Talked to a local real estate agent in town today and he says that property is selling fast now that Pennsylvania has removed their 60 day restrictions on showing/selling properties (well, you could take a virtual tour) and a number of places are getting multiple offers that go above the asking prices. Many houses in my area go for $175 to $225k and interest rates are very low now.

    In contrast, a local hospital near me posted a loss of $40M for the quarter (they do about $350M in revenue in a regular year) and are in the process of layoffs, benefit reductions such as no match to the retirement plan, and revenue does not look good for them over the next few months either as people have just stopped making appointments for regular medical issues.

    There will be many winners and losers in the next year, so I am just investing in companies that have strong balance sheets and quality management teams. Good luck to all.

    1. Lou, You are spot on. Employers laying people off and houses getting snatched up at same time. My friend wanted to buy a bigger house with pool, and terms were agreed too last week, but it was contingent on his home selling. Well that wasnt a problem, it sold less than 24 hours on the market. So he will be moved into another early next month.

      1. Grid, sounds like the same in your area too – but I cannot really get a grasp on this. It appears my local hospital will be laying off staff soon – but there has been a shortage of nurses for the past 10+ years. When I was CFO for a medical organization, we sometimes could not even get a nurse for $65k per year even with limited experience.

        1. Yes, its like a mirror of your situation here. Over 2000 people lost their jobs at one of the regional hospitals. One was a good friend of my GF. She gets severance through Oct. though based on years experience.

          1. 2000? I frankly would not have guessed a regional hospital employed 2,000 employees in total. The ripple effect of that kind of loss in a rural area can last a decade. Hopefully, well, not meaning to say hopefully things pick-up for the hospital, but maybe in time there will be re-hires.

            1. Alpha, I wasnt precise in what I meant. No, its a regional area system encompassing St. Louis and metropolitan region amongst other metropolitan areas in US. Mercy employees 45,000 and not all the 2000 layoffs were StL area.

              1. Grid, When growing up there was a sprawling IBM plant in the next town which employed many thousands of people at otherwise unavailable salaries. It was a rural area with a lot of farms and service jobs. Then one day IBM closed the complex and moved the operation to North Carolina. As the area was not economically diversified like the greater Stl area is today, The economic impact was absolute. I remember a lot of abandoned homes that stayed that way for a decade.

          2. Hospitals, particularly ones newly being acquired, or are anti-union, can take advantage of Covid to lay-off (read fire) a bunch or all (as St Mary’s hospital in Reno did when acquired), saving huge amounts on salaries when re-hiring–they simply start them at the bottom of the the pay grades. Chances are slim that many hospitals have a retirement package aside from 401K & B, etc, so they can likely escape that cost too.
            Ugly business.

  5. The SP500 has dropped 7.1% this week from high to low. My take is it will not drop more than 10%. This is a wild ass crazy bull market.

    Do, I think that it should with COVID cases rising in many states, high unemployment, and no clarity on earings? I sure do.

    Am I going to fight the Fed driven bull market? No.

    So, I suspect by midday tomorrow (if not by tomorrow morning) that the market will stop dropping.

    1. I also think the fed will stop the market from falling too far.
      Try to avoid companies that might go bankrupt as the fed won’t save them.

      1. Anybody on this site want to guess on the bankruptcy that tanks the market like Lehman did?
        The housing market seems like Wile E Coyote over the cliff and it is only a matter of time before the slowdown hits the market.

        1. I don’t like to make predictions because of confirmation bias. I might be more interested in proving myself right than in seeing what’s really happening.

          1. Martin G, I am with you on predictions causing trade bias…moreover it is impossible to handicap covid.

            Windy

  6. I added a little NLYprI today. Going forward, all my mreit and shipping buys in my stock account will be preferreds. Those two groups are just too volatile for me to hold the common even in a designated common stock account.
    Fidelity is very annoying with these fixed to floating issues as they make you go through a representative. There’s no charge but the experience is discouraging. And should you have a limit order which doesn’t fill, you can’t change the limit amount without going through the process all over again.

    1. Yes Jerseyvinny–it is rare for me to buy an mREIt common share for the reasons you mention. We have 3 accounts–2 at etrade and 1 at Fidelity–I simply to the etrade account with and FTF etc.

    2. I’ve placed dozens of orders for floating issues, having to call (and complain about having to do so) every damned time. At least they no longer make me listen to their spiel.

    3. I tried to buy an inverse etf and Fidelity wouldn’t sell it to me until I changed my profile to show an investment style of Most Aggressive. Which is ironic because hedging is a conservative strategy. They should just say Don’t buy this unless you know what you’re doing!

      1. Yes. Fidelity does have this nasty backroom person (probably an attorney wannabe failed the bar exam) scaring the Founder and majority shareholder, Ned Johnson, with fairy tales. I used some cash to purchase a tiny position of ABBCL @$24.70, which likely would get lower next week (too late to change ) + another 135 shares at Schwab, with concurrent sale of 280 shares of ASB-E. I consider myself lucky and HUGE THANKS to Tim McPartland, got 88 shares of his ATTRL with bid of $43 filled at $42.3 of 15 shares plus $42.4 of 73 shares. Based on 2019 dividend calendar, ala Doug Le Du subscription or perhaps Fidleity.com, the ex dividend date should be around July 2, 2020. 6.2% of this jewel is probably the safest IMHO. Safe Bulkers, Inc. apparently has a nice so great quarter, bought some more. Still whopping 11.12% dividend. Got lots of unrealized losses of new regional bank issues, to be offset by SB-D (moderate addition).

        PS: Fidelity will require buyer of ATTRL, which must through an agent and require MORE phone call, IF you need to CHANGE the price. This time, I aimed “correctly” on ATTRL.

        1. Remember, the AATRL is only suitable in non-taxable accounts. You don’t want it in a taxable account.

          1. NH, that’s a good reminder. When I first bought it, I was unaware of that fact, so quickly (2 weeks later) sold it in my taxable account (before I hit ex-div date), and bought it in IRA account. Since I didn’t hit ex-div (and was a small loss), I’m hoping it won’t cause me grief at tax time next year.

              1. Is that true if the transactions are in different accounts? Especially if one is taxable and the other isn’t?

                1. I am not a tax attorney but my understanding is yes. Your brokerage may not catch the wash sale but it is still a wash sale. That’s true even if the wash sales are made at different brokerages.

                  If anyone knows better I trust they will speak up.

                  My rule is I will never risk a wash sale when I have sold something at a loss. In most cases there is an equivalent (or roughly so) security that you can buy that will maintain the exposure without the wash sale rule coming into play. It only has to have a different CUSIP.

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