Of course what I am really asking is are you ready for more volatility? If your portfolio isn’t positioned how you want it now you may be kind of late to starting arranging your holdings. On a day like today all one can reasonably do is sit back and watch the action–no need to be thinking about buying or selling today because whatever happens today will be gone on Thursday and we will be on to the next ‘worry’–while continuing to ‘shop’.
Today we had housing start released and they showed surprising strength at 1.5 million units versus a forecast of 1.38 million units–but this just balanced a revised plunge in January. Its funny that the homebuilder confidence index tumbled to 38 which was 3 points under forecast. Without help from interest rates the home builders could hit a wall pretty soon–not yet, but if we tip into recession and unemployment rises there is going to be trouble. Our next BIG piece of economic news will be the personal consumption expenditures (PCE) report which will be released a week from Friday. And of course on a daily (maybe hourly) basis we have tariff and other geopolitical items to deal with.
I was surprised today to log into one of my accounts and finding I actually bought 100 shares of the Hennessy Advisors 4.875% baby bonds @24.31. Shares were trading at a wide spread when I entered my order–the ask was 20 cents above my bid. I am happy with this small buy, but will enter another order at a lower level–say $24.10. The small buy brings my position up to around 1/4 of a full position so I have plenty of room to buy and improve my overall coupon over CDs and money markets.
So let’s all kick back and wait for the 1 p.m. (central) announcement on interest rates and more importantly the Powell presser which will follow at around 1:30 p.m.
Am I ready for more volatility? Absolutely. On big red down days, I’m as much as 50-60% short, booking short term gains and ameliorating the damage to the portfolio. SCE preferreds were gratifying in January. Yeh, I know. I’m a unicorn here (the shorting :->)
From ZeroHedge:
Key Headlines:
As expected, no change in rates:
*FED HOLDS BENCHMARK RATE IN 4.25%-4.50% TARGET RANGE
But, the economic projections are not pretty:
*FED SHARPLY REDUCES 2025 GROWTH PROJECTION, MARKS UP INFLATION
Fed cuts year-end GDP forecast from 2.1% to 1.7%
Fed raises year-end core PCE forecast from 2.5% to 2.8%
Fed raises year-end unemployment forecast from 4.3% to 4.4%
Perhaps of most note:
Fed removes language that “risks to inflation and employment are roughly in balance”
Trump’s fault:
*FED SAYS UNCERTAINTY AROUND ECONOMIC OUTLOOK HAS INCREASED
The median of the rate cut forecasts are unchanged from December (still at a two cut median), but the dovish tails all shifted hawkishly…
And finally, the QT Taper is on…
*FED TO SLOW BALANCE-SHEET RUNOFF STARTING APRIL 1
Markets not buying it I guess. As Tim said, on to the next…
Anyone else noticing the bath in ECC common?
Wow–what a dump on 3-4 times normal volume. Don’t see news–but obviously folks are getting nervous around the economic situation and the affect it could have on the less than investment grade loans in CLOs.
Looks like they just released a monthly update on the 15th showing a pretty decent drop in NAV.
ECC is a pretty good Canary in the coal mine for bank loans/CLO’s, BDC’s etc. as this “equity” tranche is most exposed to losses.
OXLC even worse than ECC
the bonds of these 2 stocks holding up ok and the CLO etfs – JBBB etc holding up ok – I know these common had traded at a premium but still worth keeping an eye on…
I don’t own the common here but do own these bonds ECCV, and this preferred EICC (EIC is a sister CLO of ECC investing higher up the CLO structure)
I noticed JAAA distributions are down YTD. On a percentage basis, it’s significant.
Tim, seems like bid ask spreads are getting wider and less liquidity in many issues. I am also doing a little fishing with some low bids in case of a big flush.
In other news looks like Schwab fixed the math error in SCE/PRM… after I sent my nastygram.
Haw haw! Wait till APRIL 2nd when the new tariff rates are announced by the ADMINISTRATION! Going to make the Fed blush with rear view blinders on! Has the market discounted itself enough? Time will tell!
To WESTIE 18; THANK YOU for sharing your valuable information. I have a question for you. I too own an absolute BOATLOAD of HESM. More than I probably should but it does NOT issue a K-1 & I own it in my IRA. I own 15,000 shares BUT BUT BUT Iam thinking very seriously about selling maybe like 1/2 of it. Here’s WHY—they don’t mind issuing more shares (Dilution) and the 2 huge Companies that own huge amounts continue to sell out on a very regular basis. The market is extremely strong right now for pipelines but a little voice in the background tells me maybe to lighten it up on HESM.
Chuck
Two thoughts:
1) No matter how much you like any one holding, you have an obligation to yourself to be able to withstand a Black Swan (unexpected) hit. Regardless of your affection for HESM, what is your answer to: “how much can I afford to lose without having major regret?” Set that goal and stick to it.
2) Whenever I get an uncomfortable feeling about a given security or the size of a favored security, I sell off pieces of it day after day. Same thinking as my original article. If you have been selling gradual pieces, and your happiness horizon improves, then, you just sold a little. If, on the other hand, bad news arrives, well, you sold some and the pain was less than it would have been.
Unless you are in Warren Buffet’s class, 18,000 shares of HESM probably is too much.
To Westie 18 & dj; THANK YOU for your feedback. I truly do appreciate it. I don’t mind telling you that I was “Blessed & Lucky” having a great paying job for over 40 years. If that Black Swan ( I like White Swans better–LOL) were to fly over it would be painfull for sure. It wouldn’t wipe me out or anything but it would hurt mostly “mentally”. I still remember “quite vividly” losing $64,000 on ENRON & that was back in the days before I had alot of $$$$. I got a good one for you—My broker called me when ENRON has fallen from $90 down to $20 and I remember him saying this to me—“Chuck Enron is at $20 a shares and its a “BUY OF A LIFETIME”. We all know how that story ended. Needless to say I don’t use that broker anymore. Its always nice to share a story once in a while with like minded folks here.
I wonder if that broker looks back now and feels any shame at how he acted that day?
NO Scott, under a commission you get rewarded. These people get advanced to a VP position, They never get demoted. They hang around the country club bar drinking 100.00 whiskey and smoking cigars.
I was offered shares in a regional carrier in Colorado that was part of United Express. They flew into our local airport that is expanding and the only major airport north of San Francisco. I had no idea United Express was an umbrella Corp for a group of airlines. The offering was for the company to buy more planes and expand. They moved up the closing date for clients of the brokerage and I got suspicious and got cold feet and backed out. The salesman cajoled and threatened me saying I had committed to the buy and he would have to find someone else to buy my shares. Less than a couple months later the company went Bankrupt. I suspect someone found out United was declaring BK in 2002 and canceling contracts with regional carriers. Long story, that salesman went on to be a VP
Chuck……. That would be a huge amount for me both dollar wise and percentage wise of my portfolio. My personal rule is to keep any one holding around 2 – 3% max of my total portfolio. If it gets to 5% I get concerned (Maybe I listen to that little voice you referred to!) and sell some to get back within my rule. Probably archaic, but it protects me from big hits (losses) if something goes south. I looked at the chart of HESM, and yes, I would sell some! It is also right at its 52 week high. It is paying around 6.5%. Think you could easily find another home for the proceeds, so take the big? capital gain and cut it down to size…..
Trying to follow III’s example of sharing his portfolio, here is my thinking and how I am invested:
First, my mantra: “If market moves (ie, volatility) bother you, you do not have the right asset allocation.”
Next, my economic outlook. I foresee “stagflation”. Erratic implementation of tariffs and DOGE cuts generate a growing feeling of uncertainty. The need to refinance $12trilion (Howell) of existing debt plus current year deficits will ultimately lead to upward pressure on inflation.
Alternative – less/no recession, but still inflationary pressure.
Accordingly, here’s where I am invested:
65% Hold-To-Maturity Debt. Duration shorter than 2031. Laddered Bills, Corp bonds, BDC’s. Largest non-Bills: XFLTPRA, ATCOL, EICB, CGBDL.
Portfolio yield 4.9% Cap Gain .05%
18% Sock Drawer Low P/E High Yield common stock. Largest holdings: HESM, ELV, ET, DOW, GIS PFE ADM . Portfolio yield 5.7% Cap Gain 3.7%
11% Long duration prefs. CPRN BMLPH GSPRD CHSCM LBRDP
Yield 7.1% Cap gain 2.6%
6% Hedge. SH GDX GLD SILV CGNPRB
Yield 0 Cap gain 5.5% (mostly GDX 27% fm May 2024)
The best part, to emotional me, is:
SPY goes up, Sock Drawer wins, Hedge loses some.
SPY goes down, rotation away fm QQQ benefits Sock, Hedge wins
Interest rates go up, Hedge wins, bonds minimally affected
Rates go down, Prefs/Bonds win
Market moves don’t both me and I have the div yields for my income.
Westie–I need to get my mind to where you are at. I may be forced into real retirement this fall–wife wants to do some long trips and can’t run an appraisal business from a mountain top (or some such location). That is when I will have to focus on cash flows versus worrying about total return.
Gold and silver stocks were a poor hedge in 2008. Many fell 30-40%.
Westie, on equity stocks I added KLG today under 19.00
Little lite on the dividend return, but I will live with that.