Month: May 2020

Certainly everyone knows by now that the money market feast (feast is relative to zero interest rates received a few years ago) is over. While one could take comfort in their cash holdings receiving 1.5-2% or so last year those days are gone.

I noticed my Fidelity Ready Reserves (FDRXX) is now tossing off just .02%–essentially nothing. My Gabelli US Treasury AAA (GABXX) is paying .47%–their portfolio has longer maturities and so has not hit bottom yet–probably will just keep drifting lower.

According to a Bloomberg article Money Market funds hold $4.8 trillion in assets–quite a chunk of ‘dry powder’–seems to me the money is poised to move into investment grade assets–maybe some utility and closed end fund preferreds and baby bonds (my favorites)–at current yields in the 5% area it is a damned site better than nothing–or potentially negative rates in the future.

I have always hated being forced into a corner with my investments–meaning taking more and more risk to earn the same meager return–but this is where we are going eventually.

So as we move thru this turmoil in the next year I will likely be carefully picking up more risk–as we all will if we want to maintain a reasonable return. A 7% target worked for a few years—then a 6% target for a few more, but maybe I will be looking to maintain a 5% return in the future–honestly I will be happy if I can get to 3% for this year.

My 3 main equity market account are currently overall down about 3% for the year–1 of them just got to the black today, while one is off 2% while the 3rd account is off 6%. I just reviewed the last 3 years and quite by accident I am running 6% annually or so overall–2019 was great, while in 2018 most income investors took a hammering in 2018 which took nice gains all the way down to a small loss–this year I need to get 2-3% to get back to my longer term average.

Equity markets continue to party today even as plenty of bad news continues to make headlines. Today Neiman Marcus filed for bankruptcy–most likely the company was headed to court anyway–the Covid 19 just sped things up a bit–of course current lenders stepped forward for $675 million in new financing–good money after bad–another Zombie. Of course this is just the tip of iceberg and further economic damage will roll out each day for the balance of year.

Whether economic conditions are getting better won’t be known for months because we don’t even know where we are economically. Quarterly results being released now for the quarter ending 3/31/2020 are mostly ‘old news’.

I did note today that California is now forecasting a $54 billion budget deficit–wow–looks like the Fed will need to speed up the printing press–no doubt in my mind that loans will be made to the states that are bleeding. Minnesota entered 2020 with $2.4 billion in their ‘rainy day fund’, but now it is gone–current forecast is a $2.4 billion deficit which is likely to worsen. The state is now considering potential layoffs–no ill will toward government folks, but either taxes are going up or costs are coming down.

Zombie companies—and Zombie jobs will be with us for quite a while. Payroll Protection loans (PPP) keeps folks on the payroll while they stare at their phones playing Candy Crush–no added value–just a different name for money from the government instead of calling the person ‘unemployed’. Business that are poorly run and who depend on massive leverage or who have outrageous amounts of debt continue to operate when by all rights they should probably go broke.

Again over 3 million folks filed for unemployment in the last week—tomorrows employment report will show the carnage–BUT I don’t expect a market reaction–we all know they will be terrible–maybe a little less terrible–maybe a little more terrible–just terrible.

I am mostly watching today, although I bought a 1/2 position in the Wintrust Financial 6.875% Fixed-Rate reset issue which began trading today. Really I like the terms of the issue, but generally can’t get excited in moving higher than 70% invested–want dry powder and plenty of it.

With markets partying a little today I took the opportunity to add a couple more percent to my investments.

mREIT New Residential Investment Trust (NRZ) had some good news today so I bought some of the New Residential Investment 7.125% FTF preferred (NRZ-B). This one has a floating rate period which is more than 4 years out–I am avoiding close by FTF issues because of the .75% 3 month Libor. This NRZ issue plays in to my attempt to lock in 7-8% current yields–this one has a 9.42% current yield–obvious plenty of risk as well.

I added some more DTE Energy 5.375% baby bonds (DTJ)–I had a position, but at $25.12 it was reasonable to add more at the right price (it becomes callable 6/21).

Lastly I added some IHTA–the Invesco 2024 Term Trust at $6.25 which is at a current yield of around 9% right now. This is a portfolio of BBB- (low investment grade) quality commercial mortgages. Certainly risk with commercial mortgages going unpaid. The net asset value is now $6.79–quite a drop in the last few months from around $10 2 months ago. The dividend has not yet been cut–it pays 4.67 cents/month and it would not be surprising to see a cut soon. The trust target is to redeem at $9.835 in 2024–looks dicey at the moment, but we’ll see.

So with my additions I am nearing 70% invested. Plenty of dry powder awaiting further developments in the mREITs and lodging REIT preferreds.

I think that right now I am above 7.5% on the portfolio yield (based on my cost). Many of the utility baby bonds and CEF preferreds I bought 10-25% below current values which gives me a high quality portfolio. I have balanced the high quality issues with the dicier issues–TWO, NRZ, HT and NLY preferreds and other such issues.