A Little Excitement as Stocks and Interest Rates Tumble

While a DJIA tumble of 300 is really not much at all compared to giant falls like in 1987, it does create excitement for the talking heads on CNBC who seem to think investors are entitled to never ending stock price indexes.

I personally am almost always more tuned into interest rates since I believe it is a more reliable indicator of economic strength or weakness. Todays reversal of interest rates (opening at 1.725%-climbing to 1.76% and then plunging to 1.61% on weak economic data) pretty much mirrors my thoughts on where we are heading–a slow motion slowing of the economy. While economic data has shown an “adequate” amount of U.S. growth I think we now going to start heading in the other direction-slowly.

All kinds of external forces are going to start to take a toll. The Chinese trade wars, strikes at General Motors, never ending softness in European economies, never ending political turmoil and on and on. I guess in the olden days we said the market will “climb the wall of worry”, but I am believing more and more that we are not going to climb that wall, but instead are going to run smack dab into the wall.

Anyway regardless of where stocks and interest rates head as income investors we just continue to look for yield that meets our needs. Maybe we do a few flips here and there to add an extra $100 or 2 to our wallets.

Today we tried to pick up a few hundred more shares of the WR Berkley 5.625% (WRB-B) notes as they fell to $25.08 yesterday. As I suspected shares opened up in the $25.20’s at which point we simply left a low limit order in place in case someone wanted to hand us some bargain shares.

We watched as folks discussed the Teekay Offshore Preferred issues which are spiking based on a Brookfield Business Partners buyout of Teekay Offshore (TOO)–the preferreds outstanding can be seen here. The preferred are to remain outstanding per the press release from Teekay so if one is adventuresome there may be more “meat on the bone” of these issues.

Some other big news is Schwab ending commissions on stock trades. While this is a welcome bit of news to investors I personally am less concerned with saving $4-5 for a trade then I am about whether I can access new issues etc. Saving 1 cent/share falls into category of meaningless for me–just give me a good execution and don’t hassle me on new issues.

20 thoughts on “A Little Excitement as Stocks and Interest Rates Tumble”

  1. With 60% of the curve still inverted and global pmi’s crashing, the fed is behind the curve. When the US. Pmi. drops below 46 it has a 100% recession probability.

    1. Not fair Tim waving a RED flag in front of me.

      I was a huge critic of Jay Powell last year calling him “Jackass” Jay at one point. The truth is that’s unfair. No doubt he is trying his best.

      With that said, I will not give up discussing his legitimate credentials. He is not suited to be a Fed Chair. The Fed Chair should be a qualified economist, not a business guy.

      So yes, the Fed is behind the curve. The light at the end of this tunnel looks like a train.

  2. I didn’t do the math, but for the 1st circuit breaker to be hit, that would need a drop of what, 2000?
    The early halt one is a 5000 point drop. That would get attention.

  3. I have to admit that I have been tempted and I have grabbed good amount of shares long in TOO preferreds today. Since they remain outstanding I see 1-2$ upside potential.

      1. Gabriele, that’s what I hope. My logic is that now they have stronger back under the umbrella of Brookfield Business Partners and in this hunger of high yield securities they seem pretty good.

        1. I bought a small position on TOO-E, following a friend who got the “tip” from Richard Lejeune last year. without any DD. Stupid me! Yet, I refused to sell despite Lejeune’s advice. Because of Navios Maritime with a super dishonest CEO attempting to totally trash both of its 2 preferreds, the market got very nervous assuming that Brookfield (one of the two powerful private equity Partnership) would follow Navio and taking it private, TOO-E would be also trashed. The delisting situation for AmTrust Financial was different IMHO. There were several events with fatal errors by the son-in-law of its deceased founder, including hiring an Israeli private eye to revenge against the founder’s enemy and got arrested. Founder’s enem(ies) presumably hedge fund manager(s) challenged insufficient insurance reserve + lawsuits + whistle blower etc., CEO did not have a good answer on question raised by one of the analysts on Earnings Call “what will you do to restore market confidence?” (something like that). Hence they took it private with one of their friend taking it over). The delisted stock is still trading and dividends were paid “as long as the Company is able to pay the debt to its creditors” was what I was told. Share price for the non cumulative preferreds stayed a firm and perhaps with incremental increase as compared to the time when it was delisted. Sorry that I failed to save the announcement on Brookfield/TOO. Apparently Brookfield offered some 25 -30% premium (now the new announcement suggest 33%) to the remaining shares of TOO commons, making the minority shareholders happy. Hence, 3 people + me made comments on the announcements, all intend to hold and hope that Brookfield may offer us some premium over the old price (in mid $16). When I searched for TOO, I see many comments.
          Here is the Article on SE:
          https://seekingalpha.com/news/3502819-teekay-offshore-accepts-improved-brookfield-buyout-offer
          Despite numerous comments, my own thinking is: it is unlikely that Brookfield will delist the preferreds. They probably would (I am speculating just like all the other comments), that they will assume the E preferreds. Since they offered 35% premium over the Pre-acceptance price for the TOO common, Brookfield should offer us the same 33%. Please be advised that I most of the time believe in the goodness of people. There probably will not be any lawsuit if they play the same game as AmTrust Financial and Navio Maritime. My guess is: unlikely that they will follow Navio cockroach (she almost succeeded if not for the Herculean effort of Norm Roberts). With all my due respect to Gridbird (who is more correct than wrong), I have STOPPED listening to Richard Lejeune, who seems to me almost worse than Rida Morwa’s subscription selling Machine. I am holding onto TOO-E. I made the same mistake on DLNG-B, exact same mistake except with huge position (Lejeune once more). I listened to Rubicon Associates, who apparently also made the same mistake. Rubicon suggest to hold BUT not to buy. Recently, he give the same advice “if you own it, hold it.” If you don’t BUY. There are many other high yield “opportunites” probably safer. I recall that our Best Leader, Mr. Tim McPartland pointed out that GLOP is reasonably safe with its A share already trading above par. So, what is wrong with their GLOP-C. I added a few shares a week or so ago. DLNG-B is okay with long term contract already in the bag. We can only hope that the owner CEO has learned his lesson. Silly analysts are already asking “can you buy some old ship taking advantage ………”. Greed kills just like the old Wall Street about PIGS got Killed. Good luck to all who own or bought TOO-E or DLNG-B. BTW, CODI is another EBITDA play. I sold all my commons and replaced the proceeds to CODI-B some months ago. Ditto on XAN-C, one of the better picks of Rida Morwa, only a small position.

      1. For sure. I looked at their financials. It was a totally disaster. TOO was not raped by Brookfield. Brookfield saved their budd for sure. Despite its long history, TOO was always dicey. I sold my TOO-A long ago and was silly to gamble on its E. TOO looked substantially worse than AHT (Ashford Hospitality). AHT and CLNY both have been recovering nicely. I still have substantial shares of CLNY-G. Good for DRIP. I am keeping; common shares have been rising nicely.

    1. Look where it trades, I wouldn’t expect a call anytime soon. Better off doing a tender if they want to get rid of it.

  4. It is interesting that Schwab will be ending commissions on stock trades. Not sure how I feel about this move – as people normally get what they pay for. Years ago I remember a company called NetZero who provided free internet service. They are long gone because the business model simply did not work. I’m in agreement with Tim, as I don’t really care about a commission of $4.95 per trade – just give me a good execution price and let me trade the new securities trading on the grey market. I actually have two accounts with Schwab and have been very pleased by their service in the past.

    1. As someone who trades a lot, I welcome the news. I doubt their service will get worse, wouldn’t make sense. Others will now follow. Obviously they think they can make up the revenues elsewhere.

      1. I just logged onto my TDA account and saw this message:

        $0 commissions coming soon
        Starting Thursday: $0 commissions on online stock, ETF, and options trades. Enjoy cutting-edge technology and award-winning investor education and service teams, with commission-free trading. Details

        *Applies to exchange-listed U.S. stock, domestic and Canadian ETF, and options trades. $.65 per options contract fee applies, with no exercise or assignment fees. #1 Overall Broker, #1 in Education, and #1 in Customer Service in the StockBrokers.com 2019 Online Broker Review.

    2. As an aside to your comment, Kapt Lou, NetZero is not long gone. It’s owned by B. Riley along with that other “long gone” internet service, Juno. Every year it seems RILY talks about how these are outperforming their expectations. RILY seems to have a formula for these strange purchases such as MagicJack as well..

      1. Thanks for the clarification 2whiteroses, I had thought the company was long out of business. Looked at their website this morning and I see they are charging for their services now, but they do have a “free” option of 10 hours per month with dial-up service. It would be interesting to know how many customers they have with the service.

        1. KL,
          I’ve seen reports that there are still between 2-9mm people in the US w/dial-up internet service. I’d tend to believe the low side of that estimate.

          1. For people that don’t use the internet much (like my parents), that would certainly make sense as they don’t need graphics or watch videos on You-Tube. My local provider is CenturyLink, but they have pretty fast service with their DSL service.

            Today I logged into my TD account and they are offering free trades starting tomorrow. Good thing I don’t own AMTD stock as they have lost billions in market cap the past couple of days.

  5. Speaking of never ending softness in European economies, IIRC an investment made twenty years ago in the SX5E, an index of the largest European stocks, would have yielded you a negative return as of this year. They have had a lot of what is referred to in the famous Heinlein quote as “bad luck.”

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