Another Exciting Day for Investors

Well that was one heck of a close on the DJIA–a couple hours ago one would have thought it was a ho-hum day so going from ho-hum to down 600 is quite a wake up call for common stock owners.

It appears that investors are now taking negative economic number seriously for a change.  Just Tuesday (I think) some readers and I were speculating a bit on whether GDP on Friday would boost interest rates higher–I commented whether a strong number would boost the 10 year over 3.2%.  Lo and behold the 10 year fell a bunch today to as low as 3.11% today and now is right at 3.12%.

Today we have very soft new home sales numbers–that is not a surprise to us as we have commented many times recently.  Higher rates and in particular crazy high prices are starting to bite pretty good.  A few weeks (or months) ago this number would have been shrugged off by the markets.  In a market where marijuana stocks such as Canopy Growth (NASDAQ:CGC) command market caps of $8 billion on revenue that equals 3% of the market cap–what could go wrong?

Well we can’t really forecast the future of common stock prices, but this market looks pretty sickly.  As long as it doesn’t ‘bleed’ into the preferred arena I am more than happy.

As a almost strictly income investor it kind of feels good to watch the common stocks get spanked—us income investors have had our turn at spankings so this starts to even the score a bit.

12 thoughts on “Another Exciting Day for Investors”

  1. I get the feeling the market is fighting back and will back the Fed down a bit, like it barked at Ms. Yellen. Europe dovetailing, and this “race to normalization” may be a hand overplayed. I am quite content having my income bets spread around perpetual, term, and adjustable. ….I would not have thought my YTD returns as a total income investor would be besting the market. I kind of expected a flat year at best, but keep chugging modestly on. Though most of my gains were first half of year. Been treading water mostly past quarter or so though at best.

    1. Grid, this has also been a good year for me as well; the flipping, gains and income of most of my preferreds, baby bonds and municipal bonds have been outstanding. Vanguard Prime Money Market (VMMXX) has a current 7 day yield of 2.21% and is YTD outperforming most of the Vanguard bond funds https://investor.vanguard.com/etf/list#/mutual-funds/asset-class/month-end-returns and many of their equity funds as well. I have been recently taking advantage of the nice dips in many of these income securities to initiate positions in higher quality baby bonds/preferreds that I thought were out of my value reach just a few weeks ago. I urge everyone to do their OWN deep due diligence and not follow any “investment guru” blindly that is getting paid 0.014 cents to make you click on their disingenuous and provocative articles. I truly have found Tim McPartland to be as reputable and honorable an investment writer as anyone I have ever read. Wishing you profitable investing, Nomad

      1. Nomad, I agree, things have held up very good this year for me. I think for most, they need to define what they want and what their goals/tolerances are. And if they cant, or want someone to lean on, Tim is a great person to lean on.

      2. Nomad, I couldn’t agree more. I tend to be quiet on these sites but take in a lot of what you fellows say. Every single position I have is an income issue and have done well this year also. It seems I read the SA articles less and less. I have followed Tim for years. We share similar investment philosophy as well as the same stage in life. My best to all. (SA handle “pistolmarksman”)

  2. I was pleased to see Armour Residential REIT (ARR) beat the Q3 estimates by 3 cents and reported a net interest spread of 1.64%, as
    both the A & B preferred shares are long time portfolio holdings.

    1. The Fed can do anything it wants and it is just a guessing game…Most people do not know about the 1940s when Fed manipulated and surpressed interest rates for better part of decade… Many would be surpised to know some of that time annual inflation rate was running 5-6% ABOVE the 10 year yield.

  3. While I DO think the Fed is screwing up by raising so much so fast, I rarely hear anything about another factor that I think is pushing the markets around: fears about the election outcome. Not trying to get political here, but while we know that October is the most volatile month for the markets, this angst over the elections and world events is really making people flee for the exits – especially on the common side of things.

    I’m really glad that I’ve moved 20% of my $ from common to ‘fixed’ investing this year. And there is still more to be done as time marches on…

    Today’s adds: CTAA, ALLY-A, and NSS

    1. I agree with G that the Fed is moving too fast, but the good news is that election uncertainty will be resolved in a couple of weeks. I also recall reading somewhere that a divided Congress is good for the markets…we’ll see.

    2. I agree, the Fed is raising rates too fast. They need to be data driven and ultimately I think they will be. But, IMHO, that only addresses part of the current reaction of the market. Powell has made it clear, he is likely to overshoot the neutral rate. Well unless somebody can give me a better answer, my view is he wants to cool off Growth. Why else, would a FED want to KNOWINGLY have the Fed Rate above neutral? So my point is if the neutral rate (which the fed believes is 3%) and they are forecasting raising to 3.25% or 3.5%, what if they change their mind and decide the current rate is neutral based upon the data. That probably still means 1 or 2 more hikes. I don’t get what they are doing at all. This is not an economy growing too quickly (only a fool who say this the night before GDP release). I believe this because of 3rd quarter corporate earnings – not the blowout we should have with the corporate taxcuts

    1. Greg,
      Thanks for linking this WP interview with Volcker. The article is very timely and the interviewee is among the country’s best Fed chairs. Fed work is indeed quite an art.

      RB

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