Preferred Stock Investing-The Good , The Bad and The In Between 2015 - 2020

[Mulligan]

To concur with you Freedom, I dont see a 2013 "Taper Tantrum". Back then yield owners were convinced rates were going back "to normal" and bailed fast... I don't see that panic talk this time...At worst some very modest price droppings, but not the $25 to $21 that happened then.

 

[Freedom56]

To concur with you Freedom, I dont see a 2013 "Taper Tantrum". Back then yield owners were convinced rates were going back "to normal" and bailed fast... I don't see that panic talk this time...At worst some very modest price droppings, but not the $25 to $21 that happened then.

30% of my current holding were purchased around tax loss selling season (November/December) 2013. 20% was purchased in 2008. Another 30% of my current holdings was purchased August 2015. The balance was purchased from February 2016 through September 2016 mainly to re-invest called securities and interest and dividend income. Unless there is a political shock November 8 causing treasury yields to spike, it should be smooth sailing for the next 6 months. I'm going look into various ways I can hedge my bond and preferred portfolio before November 8 at a reasonable cost.

 

[Texas Proud]

One of the guys on TV was talking about the Fed... he said that they stopped inventing an excuse not to raise rates as they have done so often in the past... they basically are saying 'we just do not want to raise them'... no real reason...


Rates need to be normalized at some time... or we risk falling into the Japanese way with no growth and with nothing that can be done to fight the next downturn...

 

[Mulligan]

Texas, what do you consider normal for fed funds and 10 year? I mean you personally...

 

[Texas Proud]

Texas, what do you consider normal for fed funds and 10 year? I mean you personally...

I think it does depend on the economy.... but a more normal rate with the growth etc. that we have would be in the 3% range... up to 4% even...

Look at the chart here... the rate has never been this low and is mostly above 4%... lots of times above 5%...

https://www.thebalance.com/fed-funds-rate-history-highs-lows-3306135


Not sure about 10 year as I have not followed it but I would bet around 3% higher... well, had to look it up to see... not far off... you can expand this chart out to many many years...


https://fred.stlouisfed.org/series/T10YFF/

 

[Mulligan]

My thought of "normal" was 3% on 10 year also...The majority of my money was on preferreds issued when 10 year was 4-5%. Therefore because they are yield trapped close to par from call risk, I see little price degradation on upward rate hikes towards normalization. It fact I would like rates to rise a bit to ensure safety of my issues.

 

[Texas Proud]

My thought of "normal" was 3% on 10 year also...The majority of my money was on preferreds issued when 10 year was 4-5%. Therefore because they are yield trapped close to par from call risk, I see little price degradation on upward rate hikes towards normalization. It fact I would like rates to rise a bit to ensure safety of my issues.

Just to make sure... you mean 3% HIGHER than the FF rate

So, with a 3% FF rate that is a 6% 10 year....

 

[Mulligan]

Just to make sure... you mean 3% HIGHER than the FF rate

So, with a 3% FF rate that is a 6% 10 year....

No, I mean 3% range for 10 year treasury....

 

[Mulligan]

No, I mean 3% range for 10 year treasury....

Ms Yellen has already said a low path on funds rate to normalization. 3 % Fed Funds would be years way. Heck we are over due for a recession anyways is my thought.

 

[Texas Proud]

Ms Yellen has already said a low path on funds rate to normalization. 3 % Fed Funds would be years way. Heck we are over due for a recession anyways is my thought.

But that is part of the problem.... a 3% FF rate is more normal than what we now have...

And a 3% spread from the FF rate to the 10 year (meaning 6%) is also more normal...

Having 3% on 10 year is NOT normal... looking at a chart, it was in the 4% range back in the early 60s.... then went up from there... the next time it was less than 4% was in '02... (recession) and then went back up until '07 when they tried to deflate the housing bubble...


So, a long history of it being above 4% and a short history of being less than 3% would indicate that the normal rate minimum is 4%....

 

[Mulligan]

It depends on ones reference point of normal is. Historical normal yes. I would suspect we are closer to 1940s normal at this point in time. But, ever since I bought preferreds my eye has always been on the 4% normal...When I have issues that went to market at par with 4% and higher, my concern is less. But that has been my thoughts from the beginning....Chase yield by call risk, not lower quality issues.

 

[Mulligan]

Preferred Stock Investing-The Good , The Bad and The In Between

Texas, I did some quick digging to verify my thoughts...High quality 6% plus preferreds hold up considerably better than the 5% issues do. I went back to January 2007 when 10 year was 4.76%. I will show examples of issues I own as they also traded back then also...

RNR-C 6.08% par... $25.35 today, $24.25, 1/2007
AES-C 6.75% par... $51.10 today, $49, 1/2007
AILLL 6.625% par... $26.70 today, $24.50 1/2007
IPWLK 5.65% par... $100.60 today, $90, 1/2007
I don't own this one but I checked a lower one CNTHO 5.28% par... $51.70 today, $44.75, 1/2007.
So anything above 6% that I own, I am quite comfortable with those amount of losses if Treasury returns to 4.76%... But I am not losing any sleep over that happening for quite a while...

 

[Texas Proud]

CRAP....

Was going to sell some CVB since the price is high and call risk....

Sold a total of ONE share

 

[Mulligan]

Ive never sold one share before....But I am a not so proud owner of one share of HE-U when I tried to buy 200 earlier this year... I cant even trade for you... Mine is worth $26 yours is only $11, ha!

 

[Sunset]

CRAP....

Was going to sell some CVB since the price is high and call risk....

Sold a total of ONE share

So how does somebody buy 1 share

 

[Coolius]

So how does somebody buy 1 share

I had read somewhere that Market Makers sometimes do this - buy/sell just a couple shares - to "punish" those who they think are trying to trade at prices outside their desired range. Can't really say if it is true or not, but it does sound plausible.

I have had quite a few similar experiences, and yes, even the 1 share trade.
Really screws me up because of the trade commission.

 

[Texas Proud]

Ive never sold one share before....But I am a not so proud owner of one share of HE-U when I tried to buy 200 earlier this year... I cant even trade for you... Mine is worth $26 yours is only $11, ha!

I had 1,000 up for sale.... did not want to do an all or nothing since I probably would not get any sold....

So how does somebody buy 1 share

I do not know... just checked and there were 4 shares sold at the end of the day for different prices!!! Do not know why they took mine as it was the most expensive one...

Hope more sale tomorrow and I do not get charged with another trading charge...

 

[Mulligan]

So how does somebody buy 1 share

What almost happens is a share is plucked from your lot to finish a previous transaction. Say one guy had best bid price of 500 shares. Two people may have had a better ask price than Texas and was one share short to complete transaction. So they plucked his to finish out another order.

 

[Texas Proud]

What almost happens is a share is plucked from your lot to finish a previous transaction. Say one guy had best bid price of 500 shares. Two people may have had a better ask price than Texas and was one share short to complete transaction. So they plucked his to finish out another order.

OK... now it is interesting... because I forgot that I had lowered my price a nickel...


The time and sales shows someone bought 1 share at $11 when I had a bid in at $10.95... but then bought one share from me...


The rest of mine sold today... so I am half out of CVB (well, not really half, but close)... I was doing the calc and with the 'gain' from the call price I can buy a lower yielding stock and it would take 8 to 10 years to go thru that gain...

IOW, if CVB were called, I lose a good amount from where it is today... gone in a second... but since I sold I have pocketed that premium... now I can use that to buy more shares of a lower yield...

Now, if CVB is not called, it was not a good move... that is why I am keeping half ish......

 

[Mulligan]

Preferred Stock Investing-The Good , The Bad and The In Between

It may never be called... Being a tiny $10 million issue there isn't but about a 7% premium calling CVB and issuing the underlying bonds at the $107 to $109 price bond is bringing now. When I recently got fleeced on PJS is was a $45 million issue so more profit on a call there... But the premium above call price is close to 10%. I just would be madder than hell if they called on me, so I let it go.

 

[Texas Proud]

It may never be called... Being a tiny $10 million issue there isn't but about a 7% premium calling CVB and issuing the underlying bonds at the $107 to $109 price bond is bringing now. When I recently got fleeced on PJS is was a $45 million issue so more profit on a call there... But the premium above call price is close to 10%. I just would be madder than hell if they called on me, so I let it go.

Yes, getting to 10% is what changed my mind... but not for my whole investment... it used to be my #2 largest holding... now it is #3 even though I got rid of 1,000 shares... I will take the chance on a smaller investment...


I also might just hold on to my money and see if it drops back down.... nothing like picking up a few points on movements...

 

[Mulligan]

KCC is very similar to CVB. It is dropping but it needs to drop a bit more. It is about 10% over par also. I like the issue, but it needs to drop more to get me interested.

 

[Coolius]

KCC is very similar to CVB. It is dropping but it needs to drop a bit more. It is about 10% over par also. I like the issue, but it needs to drop more to get me interested.

Happy to read your post. I have owned KCC for a while now, bought at $29.50 early this year. Will not be selling, I'll accept the risk of call.

Just reviewed my portfolio of income issues, and 48% of them are past FC date - scary. Sure hoping the HECO, CLP and Ameren issues do not get called - please, please

 

[Coolius]

Update on the Hawaiian Electric-Nextera merger:

Deal is DEAD. NextEra has announced they have abandoned the merger, after the HI PUC voted 2-0 to reject it.

NextEra will pay HECO $95 Million as a break fee.

It is possible that HECO use part of the payment to retire HE-U ( only $50 Million par value ). But my guess is not, they will use the funds to advance their Green Energy Mandate, which is politically more rewarding than lowering their financing costs.

Plus pay HECO senior management huge bonuses, of course. Wonder how they will spin that one?

I still own HE-U and HAWEL.

 

[Slow But Steady]

In preparation for rolling over a 401k, I had on open order to sell all my CNTHP at $54.20. Got a partial execution today, and leaving me with 27 shares, and thereby, another transaction fee.

At least I wasn't left with just 1 share. (Though that could still happen.)