Will Today Be Wild and Crazy?

Wow–I sure picked some doozy days to be out of the office. Unfortunately preferred stocks and baby bonds didn’t mirror common equities yesterday–my accounts hit a low for the year.

Today we have many of the big banks reporting earnings and this will set the tone for today, but I suspect there will be plenty of movement – up and down.

While doing a little reading last night I noted a number of the ‘smart folks’ saying ‘the bottom is in’. I have no clue and after 51 years of investing I know better than to think I know whether the bottom is in or not. But in preferred stocks and baby bonds I do know that there are genuine great buys available. I will be doing a little more buying on Monday (I will be out of the office again today and don’t trade on my phone)–not sure which issues I will be buying but it is a target rich environment.

As I noted to someone we really have to keep our eyes on the prize–it is really tough to get beaten up day after day with losses–but in the end we have opportunities to garner huge capital gains while collecting really nice yields on costs. It’s scary sometimes–buying when you likely will take some level of loss of the course of the next week or month–but issues will turn higher–we just don’t know when that will occur.

31 thoughts on “Will Today Be Wild and Crazy?”

  1. I think someone here was looking as GJH and said they cancelled their limit order waiting for it to hit and re-deployed the money elsewhere. In last 2 days its dropped about .40 cents and I bought 2 tranches. One at 8.95 and another at 8.65 today to cover my loss from yesterday 🙂 moving at over 4 to 5 times the daily volume today. Now in the 7% range

      1. FC I looked and Quantum has last rating Sept 22 at BB- just below investment grade. Maturity date of 12/15/33
        I feel comfortable with that for 11yrs to hold for 7%
        Anyone have suggestions for a similar trust or preferred at low investment grade let me know.
        I know I am taking a higher risk than say GJS but I am locking in the 7% while with GJS who knows what it will pay in 2yrs with a floating rate of .90% and 3 month treasury.

  2. My gut tells me we will see lower lows, but I’m nibbling on 6.5%+ QDI preferreds and will keep buying 2-3% more/month on the way down. I thought we would have had lower lows in March 2020 and only got about 20% deployed in the bad couple weeks of the time. I was saving the dump truck for another 20% down. This time I’m trying to cost average down, and swap out to get tax losses on the way.

    Many of the bank preferreds are new items in the past 10 years as they were forced to hold capital for stress tests. I don’t think the next recession will be bank related and most are in good shape (due diligence required). MBS stocks? Not so much.

    Just bought some PACW-Ps @ $24.98. Looking at Citi and MS preferreds for next week – some getting 7%+ QDI.

    A year ago, I would have dreamed of these rates, and hope this is a good strategy for 1-2+ years from now. Meanwhile, I cry (or drink) about the principal lost!

    Thanks again to Tim and all who contribute.

    1. The one area that could be trouble for some smaller banks is automotive The standards have gone to crap and they are taking some pretty hard hits on lease returns and repo’s.

    2. RickS,
      I added to my MS-E holdings this week. It’s F/F and could be called next year, selling at 25.05 makes it worth holding till then.

      On or after 10/15/2023 distributions will be paid quarterly on 1/15, 4/15, 7/15 & 10/15 at an annual rate equal to the three-month LIBOR plus 4.32%.

  3. new guy here. need some help. I one note driving be crazy ” SCCF”
    9/14 dropped on x dividend ok. since then dropped around 20%
    can’t find any reason looked on web site, googled it to death still no info.
    if it’s just the market I can understand it” don’t like it , but understand it ”
    where do you folks look for info on your holdings when there falling more than the rest of market.
    thanks in advance for the help

    1. Ron, welcome to this great site.

      I looked at SCCF. Two things explain the drop. One is the overall rise in interest rates. Another is the decline in the common, which has dropped 17% since 9/14 with no dividend involved. Tough business environment for Sachem. The market has perceived higher risk and reduced prices. I own a tiny bit in SCCC which has also fallen. But I’m going to hold at these prices.

      When an income security is falling faster than other income securities, it is generally a perceived higher risk. Higher risk means greater potential rewards and greater potential losses.

      1. Ron and Retired:

        SACH is a micro-cap company with only $143M equity market cap. Total Enterprise Value is $420M. So more risk here due to company size.

        They also just added a $7.5M stock buyback (see below).

        SACH actually issued $22M in common stock at an average price of $5.63 during the 1st 6 months of 2022, and then another $11M since 7/1/22 at average price of $4.77. Current price is $3.70.

        As of 6/30/22 SACH had $29M in cash and $34M in Investment Securities (unfortunately, these are comprised of stocks, ETFs, and mutual funds. Whoops).

        “Effective on October 7, 2022, the Board of Directors of Sachem Capital Corp. (the “Company”) adopted a stock repurchase plan (the “Repurchase Program”), pursuant to which the Company may repurchase up to an aggregate of $7,500,000 of its common shares (“Common Shares”). Under the Repurchase Program, share repurchases will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market in accordance with applicable federal securities laws, including Rule 10b-18 and 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Repurchase Program is expected to continue through September 30, 2023, unless extended or shortened by the Company’s Board of Directors. Ladenburg Thalmann & Co. Inc. will act as the Company’s exclusive purchasing agent under the Repurchase Program.”

        1. Raising the dividend and, to some extent, buying back shares does not make it sound like they are worried about paying their debt. They will net a dollar or two a share on issuing and then buying back shares.

          I don’t understand their business, or know how highly the management is thought of, but if shares are beaten down then they have some short term baby bonds which might be worth a look.

          1. Well, if they can hold on another 2 years, SACC and SCCB have pretty nice YTM. 3 yrs and SCCC looks even juicier

        2. This is an issue that one experiences risk/reward in live action and defines one risk tolerances. Granted about everything has been hit, but this type of company could face heightened risk. You have a company in a sector being hit hard, small cap, and high cost of capital (debt).
          This is where if problems occur, balance sheet matters as much or more than income statement. Exxon a few years ago could lose billions and draw on its balance sheet to not only survive, but continue paying its dividend and maintain credit rating of solid IG.
          A company like this is a down period, may not be afforded such luxuries as the doors close around it. Or it could be a home run… Its the price of the ticket to play.

      1. I just punched up SCCG..yield 12.5%??? But after investigation I realized this is a jumbo dividend for greater than a quarter. My position in SCCC was to juice my yields…OOPS! But I will still hold.

  4. I have 90 positions in my brokerage account.

    Gainers since purchase: 0
    Losers since purchase: 90

    I had a better ratio at the pandemic lows. I have executed far fewer trades this year than anytime in the past 10 years. Any cash received from dividends and interest is simply being plowed back in to baby bonds and term preferreds with 2 to 5 year maturities. I have decided to hold the line, keep the positions intact and draw the income which has never been higher. I can wait (years if need be) for the income issues to turn all the while reducing average cost. I think my nerves have become hardened over the decades.

    I look at the paper losses in terms of how many months of income it will take to cover the losses. That number now stands at 40 months of income. Wow.

    1. Very similar- maybe a bit fewer stocks, only two up. Picking at a few in small amounts. Now at 56.8% cash (most in SNOXX for safety).
      I think the world situation, Fed, and inflation will bring much lower prices for those who wait and are ready. Painful, but I think that’s how we get there.

      1. Hey Gary,
        I’ve been keeping most of my short term $ in laddered T-billls but have purchased some SNOXX after discussion here for quicker access. As far as selling goes for these investments as I’ve never dealt with Mutual Funds, it gives me the option to Sell or Exchange, Shares or Dollar amount. Which one to you use? Or does it not matter because NAV is always 1? I’m using TD Ameritrade. Thank you in advance.

    2. Gary,

      At moments like this I like to estimate my current passive income per year and divide it by 365 days and say to myself.. there is a lot of people who owe me X amount each and every day I get up.

      So far everything is paying as planned. One day inflation will slow, the fed will blink, and rates will go down/flatten. Almost everything we own will go up and those 40 months will dramatically shrink in possibly a very sudden manner.

    3. Well, I had the same situation.

      But I sold some losers for tax loss harvesting.

      So my losers since purchase went down by 4.

      Neat.

      But gainers remained the same.

    4. Gary Alexander;
      I only have 15 positions as far as BB’s & Preferred go, portfolio down about 3% right now. Not too worried about price as 8 of those positions term out between 2024-2028, just hoping they all stay viable businesses. Been buying some Bonds for the first time since the early 2000’s and some CD’s, which I last bought in 2018 when we had a brief interest rate spike, but they were only around 2.5 – 3.0 % then, now over 4 % for 1 year and up.

  5. Finding it difficult to buy stuff that has sold off hard. The bid-ask spreads have widened out dramatically.

    But still holding out for $15/share and 7% yield on CMS+C. Still thinking we might have a major wash-out by year-end in both equities and income securities, even though I realize much pain has already been inflicted.

  6. Tim..Wilder than Yesterday. ….500 down to 800 up…point on Dow..that was Crazy…. Georges

  7. Like many of you, my portfolio is hurting. I know many of us are “Sheltering in Place”.
    It feels like we are in the eye of the storm and we know the back hand is going to slap us again.
    The only good news is that the 5yr CD is 4.45% and the 2 Year is at 4.50%.
    Does that mean smart people believe the Inflation beast will be tamed before 5 years go by?
    Let’s hope so.
    Meanwhile, in my situation, I will need to work one or two more years just to stay ahead of inflation.
    Good luck to all.

    1. It means they’re guessing rates will more likely than not be lower in a few years. For one reason or another. Because Inflaton is normalized, or because economic conditions force a cut, or maybe for some other reason. No guarantees, it’s about playing the odds.

  8. Tim,
    What do you think has changed that we have seen a bottom as the “experts” are saying? Think 2000 and 2001
    Rates going up or are they going down ? Common Equities looking good and long term preferred taking a hit ? I am no sports expert leave that to Grid, but this is just a head fake.
    Too numerous equities too name that people think are looking good but I know better than to buy now. Just watching WY and WHR
    Neither of these have hit their 5yr lows. You think the economy is looking good compared to 2017 , 2006, 2000 then be my guest and jump back in.
    That was when people lost 50% equity.
    Me, I learned from you and others here. Yes I am buying and losing ground but long term I should be getting decent income.

    1. My 2 cents. Equity markets usually sniff out an economic recovery about 2 months before the recession bottoms, at which time equities move higher, off their recent bottoms. I think the bottom of the recession is several months out into 2023, assuming the Fed stays the course on killing inflation. IMO falling equity prices and increasing rates are here for a while.

      There is only one way for markets to eat this elephant, one bite at a time.

      Cheers!

  9. Great buys you bet! My big dilemma is over “concentration”, running out of options to add in high quality IG Prefs and BB. how much is enough? or to much? bottom might or might not be in but equities don’t have as much opportunity as right here. down to 28% cash holding out for 4,25% 10 year treasuries, may sell my last 2 equities bought during pandemic up big on both and yield down to 2.75%. on cap gains.

    I

    1. mike, Staying in our lane…after selling heavy a week or so ago into the run-up, we’ve been buying very heavy again the last few days. After Thursday’s CPI post added to 9 of 33 positions, 2 more yesterday.

      I’m sure we have a paper-loss on holdings but do not know as it never occurred to me to look or to care – it’s a nothing number to me. Staying focused on high-IG issues and continuing to increase holdings/lower basis/increase overall yield/increase income.

      At proportionate tranches, not going to stop buying until the cycle is complete/turns and will sell back most recent tranche on any signifcant reversals.

      1. Alpha, Paper loses you bet. But , best cash flow in 12 years I’m going all “in”
        on this strategy. til the cash is gone. or all hell breaks loose. glad I’m not the lone ranger around here. Mike

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