We are closely watching the equity markets as they tumble and while there isn’t a singular smoking gun in the sell off, there certainly are lots of individual items weighing heavily on investors. It would be a good time to head down 800 Dow points and wash out the weak hands.
Energy prices have tumbled pretty hard the last number of weeks with crude being down $15/barrel over the course of the last 5 weeks and while some like to make the case that “it is like a tax cut for energy users” this has always been a baloney saying and it is this time as well–most certainly if supply is too high we are going to have cutbacks in drilling and exploration which will serve to hurt the industry in such a way as to far outweigh the so called ‘tax cut’ benefits.
We have wild fires in California that this time are meaningfully destructive–and it is speculated that the utilities may be to blame for some fires and while it may or may not be the cases the preferred shares of these companies are getting absolutely hammered lower. Pacific Gas and Electric (NYSE:PCG) has a number of preferred shares outstanding and they are all down $2-$3/share and mostly trading in the high teens.
Insurance company Maiden Holdings (NASDAQ:MHLD) announced earnings last Friday that were horrendous–we started to go through them, but gave up as there are all kinds of creative accounting items seemingly going on with their numbers and with their sister company AmTrust Financial (NYSE:AFSI). MHLD common shares are down to $2.51 down from a 52 week high of over $9–the preferred series are all down in the $13-16 area. This mess is not California fire related–but is management caused I believe.
Southern California Edison (NTSE:SCE) has preferred shares now trading in the $19-$20 area with current yields around 5-5.5%–way too low to be worthy of even a speculation.
Goldman Sachs (NYSE:GS) is off a bunch today as it appears that Malaysia is demanding refunds on a crooked deal back in 2012-2013–this doesn’t surprise us–for no particular reason we have never had a high level of trust with Goldman.
Even with all the equity market issues interest rates are only moving a tiny bit lower–again, and for about the 20th time this year interest rates and stock prices are moving in a fashion that is confusing. The 10 year treasury is at 3.19% which is barely perceptible movement. You would think that interest rates would be much lower–BUT maybe the marketplace is getting tired of funding huge deficits in the U.S.
Conservative investors and those without adequate retirement funding should stay away from the preferred issues with huge drops today–it would be hard to make a case that there are ‘bargains’, because there are plenty of opportunities ahead to see the issues mentioned above move much lower yet.
Most preferred stocks are holding up well today and we would suggest that investors are best sitting back and watching further unfolding of the sick equity market. Will it bleed over to the preferreds and baby bonds?
To see the decimation in many preferred shares you can observe the damage here.