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

[bobandsherry]

Quote:

Originally Posted by Running_Man Most people on this forum have lived their adult lives in a world where interest rates bounce in a gradual decline over a prolonged period, which I believe we are in the early stages of reverting in the other direction. I am not sure most people will understand the impacts as the costs of borrowing continue to increase not decrease. I think logically over the next 12-18 months the interest rate at the long end will increase another 1.25 - 1.75 percent. This is a death knell for weaker players in the economy and opens up opportunities for the well funded company.

Heh.... started my career working in Banking and saw Prime/Fed Fund rate hit 20% and along the way dead-end to almost 0%. Yes, more costly as rate rises, but rates we were at were artificially low as recovery effort. Fed needs to push rates higher so they have some dry powder available if another recovery is needed. I think the greatest fear the Fed has had of late is what would have have done if they needed to further stimulate the economy for a recovery, pushed Prime to negative? Interestingly, the Fed could be the cause of needing a recovery if they overshoot, and history has seem to indicate that the pendulum always swings too far in either direction, never perfectly in the middle..... Prime/Fed Funds in 4-5% range seems reasonable level to get back to.

That's why I've been cautious on pref's with low coupon rates, especially those without a maturity date. Those things will most likely sit out there forever as those will be cheap compared to newer borrowings. If you bought just for income then no issue, but if you counted on them holding value to sell at some future date, well..... could be interesting.

[Running_Man]

What I think is not understood is that interest rates have been rising for 2 years, and yet we are only at the beginning of the interest rate increase. My nibbling would begin when preferreds like IPL-D and PSA-D are both trading under 19. Then the dividend flow would in an increasing interest rate environment fund even more purchases should rates continue to fall, it is the advantage as rates rise well above the 4 percent level, the amount of interest to apply to reinvestment grows.

[Running_Man]

Quote:

Originally Posted by bobandsherry Heh.... started my career working in Banking and saw Prime/Fed Fund rate hit 20% and along the way dead-end to almost 0%. Yes, more costly as rate rises, but rates we were at were artificially low as recovery effort. Fed needs to push rates higher so they have some dry powder available if another recovery is needed. I think the greatest fear the Fed has had of late is what would have have done if they needed to further stimulate the economy for a recovery, pushed Prime to negative? Interestingly, the Fed could be the cause of needing a recovery if they overshoot, and history has seem to indicate that the pendulum always swings too far in either direction, never perfectly in the middle..... Prime/Fed Funds in 4-5% range seems reasonable level to get back to. That's why I've been cautious on pref's with low coupon rates, especially those without a maturity date. Those things will most likely sit out there forever as those will be cheap compared to newer borrowings. If you bought just for income then no issue, but if you counted on them holding value to sell at some future date, well..... could be interesting.

Part of what I think the federal reserve has gotten wrong is the amount of income that is provided to everyday people as interest rates rise. The decline in interest rates is basically pro-business, allowing for investments and replacement of human capital with mechanical capital, the increase in interest rates is pro-spending it creates it's own cycle in the opposite format. It becomes cheaper to higher a person than to finance equipment, slowly at first but it creates a momentum and it feels like the economy is gathering momentum. The Fed seems to have no intention of ending the interest rate increase for the next 3-6 months anyway.

So in total in US we are talking about 26 trillion in debt a 2 percent increase in interest rates as we have seen as it works through the debt means 520 billion in additional income. That is about 3 percent of GDP and has a larger impact on the economy to the upside than the investment cost has on the down side. The only problem a company has when it borrows is when it can no longer borrow.

[Freedom56]

Those investment grade bank preferred stocks from JP Morgan, Capital One, Wells Fargo are slowly creeping down to the buy zone. This December may be a good time to jump back into those issues if their yields start approaching 6.5-6.75% like they did in late 2013.

[aja8888]

CHSCM (CHS) is at a 5 week low of $25.61. Right there it yields about 6.5%. I am add to my position tomorrow.

[Mulligan]

Quote:

Originally Posted by Running_Man What I think is not understood is that interest rates have been rising for 2 years, and yet we are only at the beginning of the interest rate increase. My nibbling would begin when preferreds like IPL-D and PSA-D are both trading under 19. Then the dividend flow would in an increasing interest rate environment fund even more purchases should rates continue to fall, it is the advantage as rates rise well above the 4 percent level, the amount of interest to apply to reinvestment grows.

RM, Dont hold your breath for IPL-D at under 19....Do you know when the last investment grade perpetual preferred electrical utility was issued at plus 6%? It was the 1990s when 10 year was near 5%. It aint happening near term. That is why i snooze holding AILLL...Outside of a panic 4000 plus share dump coming from me or another friend who owns even more, or Coolius you arent getting it at par. Electrical preferreds unlike banks trade for a higher premium...Heck PPWLM in 1975 was issued BELOW the yield of the 10 year and 30 year bond. $19 is a 6.68% yield for IPL-D...AILLL was 6.625% issued with a near 5%, 10 year back in early 1990s.

[Mulligan]

Quote:

Originally Posted by aja8888 CHSCM (CHS) is at a 5 week low of $25.61. Right there it yields about 6.5%. I am add to my position tomorrow.

It got under $25.20 today....The CHS issues bounced a lot today... I will watch, but not ready to pull trigger...Trouble is I already have a lot of issues that wont invite me selling to buy much...I have term dated issues such as CNIGO and CNIGP I am fine holding. AILLL holds an above market relative yield already. Im comfortable holding JBK and ASRVP until maturity if needed. NSS is a live adjustable... Wont sell my AWRY. PFX is a hold until maturity or bankruptcy. Only leaves me a few other options I would seriously consider selling to buy something.

[Mulligan]

Quote:

Originally Posted by Freedom56 Those investment grade bank preferred stocks from JP Morgan, Capital One, Wells Fargo are slowly creeping down to the buy zone. This December may be a good time to jump back into those issues if their yields start approaching 6.5-6.75% like they did in late 2013.

Freedom, US Bank preferreds are highly rated but damn they are dumb. They just sent me a credit card access check for 0% (3% access charge) for 19 months. I am going to make them pay. I am moving all my home equity loan and dump it on them for 19 months. They offered me 15 years ago a 0.99% life of loan access check. I maxed that out and milked it for 10 years before they started sending a lot of fine print changes trying to smoke me out. So I just paid it off so they couldnt sneak a nickel by me.

[bobandsherry]

Quote:

Originally Posted by Mulligan Freedom, US Bank preferreds are highly rated but damn they are dumb. They just sent me a credit card access check for 0% (3% access charge) for 19 months. I am going to make them pay. I am moving all my home equity loan and dump it on them for 19 months. They offered me 15 years ago a 0.99% life of loan access check. I maxed that out and milked it for 10 years before they started sending a lot of fine print changes trying to smoke me out. So I just paid it off so they couldnt sneak a nickel by me.

Not so dumb, you are just smarter than the average bear. Maybe lose a couple points on you, but they'll do well with the majority who will carry balance after the promo term and also make a couple late payments and pay $$$ late charge.

[Mulligan]

Quote:

Originally Posted by bobandsherry Not so dumb, you are just smarter than the average bear. Maybe lose a couple points on you, but they'll do well with the majority who will carry balance after the promo term and also make a couple late payments and pay $$$ late charge.

Sadly I suspect you are correct. Plus there are a lot of fools who take the “0%” cash, then charge items on top of it which generates immediate interest. When one uses the access check, the credit card has to go on ice until the balance is paid.

[Running_Man]

Quote:

Originally Posted by Mulligan RM, Dont hold your breath for IPL-D at under 19....Do you know when the last investment grade perpetual preferred electrical utility was issued at plus 6%? It was the 1990s when 10 year was near 5%. It aint happening near term. That is why i snooze holding AILLL...Outside of a panic 4000 plus share dump coming from me or another friend who owns even more, or Coolius you arent getting it at par. Electrical preferreds unlike banks trade for a higher premium...Heck PPWLM in 1975 was issued BELOW the yield of the 10 year and 30 year bond. $19 is a 6.68% yield for IPL-D...AILLL was 6.625% issued with a near 5%, 10 year back in early 1990s.

I have the greatest of respect for what you do, I am unable to do so, moving in more the intermediate term, I am letting interest rates tell me what is happening, and I disagree on the likely outcome of this latest move, quietly and without fanfare interest rates have hit a multi year peak and only now is the interest rate crowd starting to sense the loss of capital on their investments. This has been heating up like a frog in hot water.

Being at 20 1/2 in 2013 I do not find another 7 percent drop from there very unlikely and it almost certainly should drop below it's 2013 bottom based on current interest rate activity. In the words of Willie Wonka, " the suspense is killing me, I hope it will last!"

[Mulligan]

RM, I should have been more specific...It wont sit at 19...You might get a one day sell off dump...As a general rule higher quality preferreds trade between 200-400 basis points above 10 year. That is a pricing hole to drive a mack truck through. So it is a combination of current long end rates, future expectations, and how many feet are running out the door at the same time. But IPL-D sitting at $19 unmolested day after day with a 4% 10 year is just not likely with history dating back to 1950s I have tracked for utility preferreds. Now if it gets over 5% or investors feel it will then those bets are off.
IPL-D didnt sit at 20.50 during taper, it just briefly nose dived and bounced back very quickly. It was about back to $24 within a month. If it gets $21, I will start laying the base down pretty good.
I have largely been repeating the same stuff for 5 years, owning preferreds that have a stiffer backside support. I look at a lot of preferreds like you mentioned that are actually negative for 52 weeks now including dividends. I have none of those. Most of mine are still largely sitting in their upper trading range (allowing for many that just kicked out their divi last week).
They will falter also, but not to the degree most have though.

[Mulligan]

Quote:

Originally Posted by Mulligan RM, I should have been more specific...It wont sit at 19...You might get a one day sell off dump...As a general rule higher quality preferreds trade between 200-400 basis points above 10 year. That is a pricing hole to drive a mack truck through. So it is a combination of current long end rates, future expectations, and how many feet are running out the door at the same time. But IPL-D sitting at $19 unmolested day after day with a 4% 10 year is just not likely with history dating back to 1950s I have tracked for utility preferreds. Now if it gets over 5% or investors feel it will then those bets are off. IPL-D didnt sit at 20.50 during taper, it just briefly nose dived and bounced back very quickly. It was about back to $24 within a month. If it gets $21, I will start laying the base down pretty good. I have largely been repeating the same stuff for 5 years, owning preferreds that have a stiffer backside support. I look at a lot of preferreds like you mentioned that are actually negative for 52 weeks now including dividends. I have none of those. Most of mine are still largely sitting in their upper trading range (allowing for many that just kicked out their divi last week). They will falter also, but not to the degree most have though.

That is the total benefit of buying “yield trapped” issues....Example compare AGO-B to AGO-F...By holding AGO-B and risking call, I am now being rewarded with a stronger price. As it has same priority as F but has a 100 basis point free ride...A 100 basis points is equivalent to $4. The call fear of the above market yield has kept it anchored towards par. Its just common sense, if you find issues that should have been called but werent the “anchoring to par” is what protects one from less capital loss.

[Mulligan]

RM, I keep going on tangents and am not stating my entire thoughts...I dont disagree with your general viewpoint and appreciate the thought process...That rate fear has only been my real concern as an ongoing basis. But until the other developed countries start letting their rates rise the upper end may stay subdued. The issues that are in PFF are in more danger. But I doubt I own one issue they have (which is why I whip its ass year after year).
But there are ways to mitigate some of the drops you are waiting for. Take my FIISO. This is a very decent quality bank preferred last I checked earnings covered the preferreds by 17 times (that is big) and I collect 8.4% plus year after year as it is a cumulative non callable bank preferred. Nobody can get their paws on anything like that...Gonna take a lot of damage for a decent bank to issue a 8%preferred. And it certainly wont be cumulative...NSS as another example is not going to be tethered to rising rates as its yield actually goes up everytime Libor rises...Call and credit risk are the issues here not rising yields. But with a nice oil tailwind, it will be fine for now. And of course term preferreds of decent quality will minimize long term capital losses also. So there are ways one can mitigate capital losses to a certain degree.
Btw, you got me thinking and will look to tweak a bit...But of course off the beaten path as usual though, lol.

[Coolius]

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Originally Posted by Mulligan That is why i snooze holding AILLL...Outside of a panic 4000 plus share dump coming from me or another friend who owns even more, or Coolius you arent getting it at par. .

Certainly will back up the truck for AILLL selling below $26. I would be willing to sell ( at loss ) other positions to secure more AILLL.



Unfortunately, other REIT preferreds in my portfolio are getting creamed, so the overall result is rather dismal. But hopefully can focus on the income stream - now probably more secure than ever - and try to uncouple from the declining stock price.

[Mulligan]

Quote:

Originally Posted by Coolius Certainly will back up the truck for AILLL selling below $26. I would be willing to sell ( at loss ) other positions to secure more AILLL. Unfortunately, other REIT preferreds in my portfolio are getting creamed, so the overall result is rather dismal. But hopefully can focus on the income stream - now probably more secure than ever - and try to uncouple from the declining stock price.

Since AILLL is essentially 26.18 now going exD tomm, I dont see it going back below 25.50 on any tradeable basis at all. Wouldnt bother me because I know its inherent value. Im not seeing 4% on horizon and the show me attitude has served me well. Yes I have seen drop a lot now that I looked at some. But mine just havent with any noticeable amount except for GLP-A yesterday.

[PoorOldCountryBoy]

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Originally Posted by Mulligan Freedom, US Bank preferreds are highly rated but damn they are dumb. They just sent me a credit card access check for 0% (3% access charge) for 19 months. I am going to make them pay. I am moving all my home equity loan and dump it on them for 19 months. They offered me 15 years ago a 0.99% life of loan access check. I maxed that out and milked it for 10 years before they started sending a lot of fine print changes trying to smoke me out. So I just paid it off so they couldnt sneak a nickel by me.

I do the same thing with a Fidelity credit card - then set up automatic payment to make sure they don't get a chance to hit me with fees. I learned the hard way that additional charges trigger the fees (not stated clearly before where I double checked everything) and had to get them to reverse the fees. Now the card gets hidden away until all is paid off. 3% fee is easy to do.

[Mulligan]

Country Boy, it is certainly a cat and mouse game on who can hose who over first.

[Golden sunsets]

Mulligan/Coolius; I haven't been paying attention for several months. Just tried to look at the trade history of AILLL on Bigcharts, but the format doesn't seem to show the history of recent trades like I remember. Did something change or am I doing something wrong?

[Coolius]

Quote:

Originally Posted by Golden sunsets Mulligan/Coolius; I haven't been paying attention for several months. Just tried to look at the trade history of AILLL on Bigcharts, but the format doesn't seem to show the history of recent trades like I remember. Did something change or am I doing something wrong?

Bigcharts appears to be operating normally, I tried to paste the graph here, but was unsuccessful - AILLL has been in trading range for a while. Today is XD day, and stock is down only $0.16, which is a "gain" of $0.24, with only 250 shares traded. Solid as a rock in the face of a sea of red today - the panic selling is in full force it seems. 10 yr Trsy @ 3.22% earlier today.