Author: Innovative Income Investor

While we are only a few hours into the trading day even a super producer price index (PPI) report can’t move equities higher. The S&P500 moved up toward breakeven at 9:30 (central) sellers came in and said ‘let me out’ and down we go to now being off 3/4%. I mentioned days ago I was looking for some sort of ‘flush’ with massive volume to put in the short term low–don’t think we have had it yet.

Even with super PPI numbers the 10 year treasury yield is a bit higher–a couple basis points to be at 4.33%. For sure there is a lot more going on there than inflation–the bond vigilantes are keeping the treasuries feet to the fire. Initially I thought this would happen, but then I kind of backed off of that thought as rates were down in the 4.10% area. The bond market, like myself originally thought the Trump administration would actually be able to lower government costs–now folks are not so sure.

I’m doing nothing but watching the charts today–not that it matters to someone holding a portfolio like mine, but I still find it very interesting.

I looked at our portfolios—1 account was up 6 cents–the other 2 slightly green. Not much action to look at in our accounts.

Well let’s see if the markets can break out of this funk and move a little higher–not looking like good odds now.

Well we got the lower inflation number this morning as the consumer price index (CPI) came in cooler than expected. Did that help equities skyrocket higher? Yes for about an hour and then folks said get me out! The S&P500 is now around even on the day–after being up 1%–of course with this market we will have wait and see if there are dip buyers out there.

You would think the 10 year treasury yield would have fallen a little bit with the good news–nope. The 10 year treasury is dead flat at 4.30%. I don’t think that bond buyers are thinking the ‘fiscal house’ is in order yet–certainly investors are NOT going to be heavily swayed by a singular inflation number. Government spending isn’t contained–and maybe never will be so why would investors get real excited about 1 number. Maybe all congress will understand is a lack of buyers for all their debt.

Over on Yahoo Finance I got sucked into clicking on a link to this ‘story’ (below). It caught my eye because of ‘worst slumps in history’ verbaige. Yes it has been painful. Yes if you are 25 years old you think this is really bad–and no doubt it has been painful for many folks. So I checked the author–maybe 30 years old and writes novels. No blame for the author as he is just trying to make a living–but really TipRanks is not where I ever go for my economic news–just clickbait. Well if this pullback is one of the worst slumps in history I wonder what all the bear markets we have lived through would be called?

S&P 500 Faces One of Its Worst Slumps in History – Is Trump’s Trade Policy to Blame?

Yesterday I did manage to buy some of the Priority Income Fund 6.625% term preferred (PRIF-F). It wasn’t easy and overall I had to pay more than I wanted at $24.60 and $24.66, but regardless it still fits in my wheelhouse with a potential redemption in the next year and a relatively short time frame even if it is not redeemed early. Just looking at the issue it has jumped and now is trading at $24.98.

I just wanted to write a bit about what I am trying to accomplish in our portfolios for 2025.

As always I have a goal for a return for the year–historically I like 7%. Why 7%? It is a number that simply has worked over many years–it covers inflation and then is 3-4% above the inflation rate. But like everything in investing one has to stay flexible.

The 7% goal worked fine for many years as interest rates trended lower for literally decades. We had lots of perpetuals or baby bonds from which to choose to get the goal (or near it at least). Unfortunately if one had some cash there was no place to go with it that paid any interest–years and years at or near zero. Additionally as we got late in the interest rate downtrend we started to see lots of investment grade preferreds being issued with coupons as low as 3.9%—ripe for massive losses if interest rates started moving higher. Interest rates hit their lows in the summer of 2020 and then moved higher-we got hammered and took some portfolio heat–no 7% in 2020–or 2021. While both years were decently green (depends on your definition of ‘decent’) they were a long way from 7%. Then 2022 came and slammed pretty much everybody–we were off around 6% in 2022.

2023 and 2024 were very good years for many income investors. With higher interest rates we could nail down a portfolio base with CDs, MMs and Treasury bills in the 5% area and balance it will some short duration term preferreds and baby bonds, and a modest number of perpetuals which worked very well. If we could all replicate 2023-2024 we would all be multi-multi millionaires.

As I looked at 2025 I could see interest rates falling some–not dramatically, and I feared that the huge demands of the Federal government Treasury would push rates back higher. With CDs, MMs and short term Treasury bills only providing coupons of 4-4.5% to make a 6% goal (reduced from my normal 7%). I needed to balance those vehicles with issues in the 7.5-8% area. This leads me to term preferreds and baby bonds with short dated maturities. Unfortunately I did keep a sprinkling of perpetual preferreds which has made it somewhat difficult to maintain portfolio balances that are much ‘green’.

Thus far in 2025 our portfolios saw January up 1/2%, February up .6%, but March is now at exactly break even. So we are on pace to almost make our 6% goal–to beat the goal I will need to be able to identify perpetuals to buy that will move higher and give decent capital gains when (if) we gain a sustainable move lower in interest rates.

Now I aware many of the folks on the website are looking for a decent income flow and are not so sensitive to account balances. Personally we don’t draw any money from retirement accounts (excepting our 2 non contributory General Mills pensions) and don’t currently have plans to do so until I am forced to with minimum distributions. I get great satisfaction out of hitting my goals so I set goals and work hard to hit them–BUT I don’t take giant risks. I will take 3-4% if necessary if it means I can sleep at night and avoid giant capital losses.

So right now I am fine with a fairly large CD allocation and the balance with the term preferreds and baby bonds plus a sprinkling of perpetuals. I am watching interest rates closely to maybe identify a buying time for those low coupon, high quality preferreds which are trading in the ‘teens’—they hold the key to a potential 7-8% return year if we can squeeze 4-8% capital gains out of some of these issues. We’ll see.