A Pause that Refreshes?

While futures on the DJIA are up over 300 points this morning we would not be surprised to see them end the day negative–BUT we hope to see a pause in the drop giving everyone a chance to ‘regroup’ mentally.

While we are not affected much by equity averages we are at the time when the ‘spillover’ to the preferred stock arena could occur–toss the baby out with the bathwater.  We will be interested to see consumer sentiment and confident numbers next month when they are released–these are key factors for interest rate hikes (or not) ahead.

While we would relish the opportunity for picking up some bargains, we detest loss of capital–even if the loss is shorter term in nature.  I guess we want to ‘have it all’.  But this talk is all just loose talk since we are not changing our portfolio now.  We have cash available if bargains happen–but if not we just keep plowing ahead.

The 10 year treasury is at 3.16% this morning–so a nice pause in interest rates here would be nice for investors as well.  Obviously the forecast is for higher rates ahead but we hope they move slowly–a basis point or two per day (or week), but we all know now that data that wasn’t important last month all of a sudden is important.  We continue to believe that the term preferreds and short dated baby bonds are the best arena to play in.  As we move through the months ahead investors will be faced with making their best guess as to whether interest rates are peaking–once we determine that rates are at, or near, a peak we will be faced with decisions on whether to start moving some into the perpetual preferreds arena.

7 thoughts on “A Pause that Refreshes?”

  1. There is a new preferred issue BC-A that just came out. It gets 10 out of 10 from CDX3. Yield is 6.5%. It is still trading at par. Any thoughts?

    1. The strong points don’t need pointing out but the question marks do.

      This is investment grade but nonetheless this company almost went bye-bye in 2008/9. Their outstanding bonds traded down by 75% at the time. Look at 117043AG4. Considering this is a 30-year issue, that’s not a positive. This is anything but a recession proof company.

      Also consider that the company has a 25-year call option on the issue. Relative to the 5-year “guarantee” period that’s a long time. This is really a near perp with a 5 year call. Except is not a perp, so no QID. Depending on your tax bracket the 6.5% coupon is equal to about a 5.5% YTC perp.

      It would not be on my buy list.

  2. I’m old enough to remember when earnings reports drove the markets…any important names reporting next week?

    1. Lots… BofA on Monday, CSX and Goldman Sachs on Tuesday, Alcoa and Abbott on Wednesday, American Express and BB&T Bank on Thursday, and on Friday – Honeywell and Proctor & Gamble, just to name a few.

      CNBC has an “events calendar” listing all of this type of information in a concise manner.

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