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A Few Random Thoughts

Well the FOMC meeting starts today–75 basis points of rate hike is pretty much the consensus, although 100 basis points could happen. I suspect that equity markets will pretty much remain flattish until tomorrow at 2 pm (Eastern) when the rate hike announcement comes.

I continue to keep a close eye on the utility preferreds and baby bonds–I mentioned the Duke 5.75% perpetual yesterday (DUK-A) hitting a 52 week low (it went ex last week), but now we have bunches of issues between current yields of 5.5% and 6%. While we hold a number of these as others get to or go over a 6% I just have to add some more. If one were to assume that a year or 18 months from now interest rates started drifting lower capital gains potential on some of these issues makes for a 7-10% total annual return for a number of years (for those issues trading down around $17-$21).

In an hour we have housing numbers released–building permits and housing starts–consensus has them softening–barely. If these numbers remain firm the Fed isn’t getting the results they want–I hope they soften personally–not a lot but below consensus. My ‘local’ observation is that activity is softening–I am seeing builders put up spec ‘shells’, but not completing the construction until a buyer steps forward. We’ll see soon.

20 thoughts on “A Few Random Thoughts”

  1. Fidelity paying 1.95% on sweeps account. So I moved deadbeat cash into that account while waiting to pounce.
    RITM-D under $20 I bought even more. Unless it’s bracing for bankruptcy that’s a bargain even after more hikes.

    1. Martin, Fidelity is paying 2.24 on FZDXX, a premium sweep account. No minimum for retirement accounts, but you have to sub 100K for a non-retirement account.

      Agree with you on RITM-D.

        1. I have it in my Roth and have never had anywhere close to 10 K in cash in that account. Maybe there is some sort of exclusion for those that have it in other accounts.

    1. Thanks RIckS,

      FRC-J seems to a good bet. Picked some small number of shares in my IRA acccount. NET income stream better than PRE-J at this time. Disclosure: own some PRE-J, some with unrealized gain. Others with unrealized loss (misclicked and bought too high). I will not bet anything below 6% at this time. The talking heads in CNBC seems to urge J Powell to go crazy and over raised the rate, exactly the risks as opined by Jeremy Siegal. Real estate already down and the trend is clear in his mind, taking about one year to see the effect. Eventually the taper will cease and Tim’s SWANS should come back with flying color. Just MHO. Gridbirds NSS and CEQPPR holding. Less for CEQ because WTI has shown declining pattern for ALL energy positions. No drama for shippers at least for now.

    2. Rick, what about FRC-I? It’s a skosh less current yield (6.13% for I vs. 6.20% for J), but a higher YTC (20% (ish) for the I vs 18% (ish) for the J).

  2. Thinking about the trend: Ok, destroy demand, live off your fat and consciously and incrementally downgrade, prolong your replacement of goods, turn your thermostat way up and run fans, drive less., whatever. Multiply that times 350,000,000 US consumers alone. We are less that 5% of the globe’s population.
    What’s going to happen when all that crap breaks, needs replacement or credit consumer finance hits India, Africa and South America, etc? Let’s say nothing else out of the ordinary occurs over the next five to twenty years.
    What would be your projection for rates long and short. Time to REALLY think and perhaps act as a ‘Contrarian’. I have those tee shirt available on my website.
    The roll over of debt at every level is going to be hit with a larger premium going to those secured at the top. Bottom lines on every balance sheet is going to go sideways at best.
    “So…what’s it going to be boy…?” We all are making REAL decisions based on things we are in NO control over. Hmmm.
    Just thought games the Day Before The Mighty Oz speaks.
    Sticking with my usual ideas that I have put up here. The pockets of turbulence are going to be usual events now that the Big Scare of 2008-9 is way back there. Time to normalize, and NOT by choice.

      1. 2WR, I bought a couple hundred more of your little mistress on the side CUBI-F below $25.10 yesterday… Burp.. got too much, but glad I got in this one and sister E early this year…In a market like this your wife needs to get jealous of your other lady as this chart has been a thing of beauty compared to the preferred market in whole…
        Not counting any of the dividends…
        5 day return… +.03
        1 month… -0.88%
        3 month… +1.90%
        YTD…. -0.43%
        1 year… -0.05%

        1. Ha…. You’re welcome, Grid. ha! … My problem is I also own the common…. It absolutely amazes me how beaten up it has been this year when throughout the entire year and probably longer than that, they have held steady on their earnings projections not only for this year but for 2 years forward… haven’t waivered a penny on their projected range

          And thanks for not mentioning that other lady associated with my wife, that biatch QRTEP…… she’s still keeping QVC alive with order after order after order after order, did I mention after order? but nobody seems to care…

          BTW, I’m sure you’ve noticed – if CUBI-E were to float today, the coupon would be 8.70%! how can they not be thinking about calling these in Dec?

      Things we need that we replace as they break over the next 5 to 20 years. Although my 32yr old Whirlpool fridge cost several hundred to repair and parts getting scarce its still running. Note any or all these can cut their dividend as consumer demand falls. Think of other brand names of essential products like tires, basic food groups :0 like Tim’s fave HRL
      Maybe some of these also have bond issues

      1. Charles M – Hormel–just had a SPAM sandwich for supper last night–my wife was raised on ‘spicy ham’.

        1. Too funny. Sorry to go further off topic, but I had Spam Moco Loco for dinner last night, and Spam Musubi last week (from one of my kids)!

          I grew up eating spam. One of the few “storable” meats we could get (we didn’t have electricity many places we lived). My boys and my Hawaiian son in law all eat it regularly. Because I travel so much, I have been able to get hold of every type of spam ever made, so they all have “claim to fame” of having tried them all. (one of those “odd stories” for a cocktail party). Some are quite good, others not so much (like Turkey Spam, or Mezclita, or Cheese). And then there is https://www.walmart.com/ip/SPAM-Pumpkin-Spice-12-Ounce-Can-2-Pack/937529427

      2. Hi Charles,
        off topic, but you may want to look at the power consumption of a 32 year old fridge. My brother replaced a 25 year old unit recently because it was such an energy hog. The new one will pay for itself in just a few years just on reduced energy use (especially at California power rates).

        I am not a fan of replacing things just because they are old (I still drive my 20 year old pickup) but when replacing something will pay for itself in a short time, it is interesting.

    1. 75 is expected and priced in. Depends on what he predicts for future hikes. Two more 50’s would have a nasty effect. Haven’t heard much from the pivot talkers lately. I’m looking at floaters and pinned-to-par.

      1. Right. Unless we get a total shock revelation not foreseen, yields probably will ease up and go back down a bit as we saw previous FOMC. I loaded a bunch of that 6% JPM preferred ahead of last event well under par and shortly after was back trading close to $26 again.

        Late yesterday I parked a bunch of money in 10 month T Bills with 4% in order to protect myself against myself in not overbuying right now. Sometimes I get too excited when I see all of these preferreds and corps trading under par. We could only be in the early innings.

        My worst fear is by some whacky turn of events, we end up in another cycle where earlier this year we saw the 3.5% – 4% high quality PSA preferred issue types get absolutely crushed by 30% or more in trading price but the next hypothetical cycle we then see this with the 5%-6% yield range high quality preferreds.

        Gotta keep some dry powder for down the road if yields keep rising.

  3. I’m moving money into position myself. My local credit unions offer nothing even in terms of the CD options.
    There may not be a buying oppertunity like this for us income investor for a long time. The low coupon IG issues are way below par so if they keep paying I accept some paper loss. But I need to keep my emotions in check.
    Even RIV.PA ( A1 – Moody) is trading at $24.
    Higher market swings may also bring additional oppertunities. (Fingers crossed)

    1. Picklenick, riv-a is still 5% off it’s earlier low. Personally, I am buying as stocks hit their June lows.

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