I have a couple mREIT fixed to floating rate preferreds in the portfolio–in limited quantity that have performed very well in the current environment.
Looking at the reduced potential for interest rate cuts from the FOMC this year these issues have good potential (at least relative to fixed rate preferreds). Markets are likely to be ‘dicey’ all year long so one just as well be paid for their invested dollars at the maximum available rate.
As a pretty conservative investor I don’t buy mREIT common shares—EVER, but the fixed to floating preferreds have the right risk/reward for me. I never go ‘all in’ to anything, but a modest allocation is quite comfortable.
I have a fixed to floating list with potential coupons on it which can be found here. Of course one never knows the exact coupon until the dividend determination date (the date that SOFR is observed for the coupon).
Markets are back to a calmer mood this morning with the S&P500 up just a bit, as is the NASDAQ. The DJIA is being buffeted by lousy earnings from Boeing–what a surprise (not). While markets may be calmer at this moment I wouldn’t expect that to continue–with the new administration we can expect disruptions weekly–whether it be a trade fight with some country or something related to immigration we will continue to have market disruptions.
I was amazed by dislocations in the utility issues yesterday–2 issues in particular got slammed. Vistra Corp (VST) closed off $54 at $138 while Constellation Energy (CEG) was off $75 to close at $275. Obviously these issues were tremendously overvalued–maybe they benefit from AI and data centers, but honestly the rise in prices in recent months was totally silly. CEG was up $80 or so this months–pure silliness. I am certain there were many other utility issues which fell hard, but those 2 caught my eye.
Today the FOMC meeting starts with the interest rate announcement tomorrow afternoon. This is followed up by GDP on Thursday and the personal consumption expenditures number on Friday. Certainly more than enough fresh data to keep markets active. Interest rates are bouncing a bit this morning now back to the 4.57% area–4 basis points higher.
Did you notice the earnings from WR Berkley (WRB) last night? Once again they were stellar–and a record. This insurer is so well managed that they just keep reporting record earnings. They made no mention of future losses from California wild fires, but I would think they will take some losses there–just a question of how much. WRB has 4 baby bonds outstanding. The WRB-E 5.7% issue is trading with a current yield of 6.12%–I own this issue in limited amounts, but could re-enter if I believe interest rates are going to be flattish.
Our portfolios had modest gains yesterday–2 very modest. Today I am once again just a ‘watcher’ of markets–kind of boring, but I am happy with the way I am positioned.
Below are press releases from companies with preferred stock and baby bonds outstanding. Additionally, news of a more macro economic importance may be posted.
Well we have had quite a ride lower today–based on Chinese AI? Or maybe based on the Columbian dustup. Or maybe there simply are lots of folks with big gains in big tech who are looking for a reason to sell. NASDAQ is off 3% and the S&P500 is off about 2% is what we know for sure.
Interest rates took the plunge with equity prices–now at 4.55%–down around 8 basis points.
The tumble in interest rates helped to negate the downward pull caused by the sharp tumble in stocks—meaning preferreds and baby bonds are relatively flat–or maybe up the smallest of amounts.
I notice that some folks are tip toeing into the political arena with their comments. It is unbelievably hard to avoid in the current environment, but do the best you can. I am watching comments as always–and may just on occasion delete any that get over the line too far. I am not going to delete stuff that has a little toe over the line–it is getting almost impossible to avoid.
One can’t really predict with any level of certainty to whether equity markets are going to move into a ‘melt up’ with all the cash that continues to be available in fixed income–OR whether markets will ‘melt down’ as folks decide it is time to bail out and move MORE to money market funds. I see everyone and their dog on CNBC, Fox Business and Seeking Alpha have an opinion as to which way markets will move. NONE of them know squat–but likely maybe 1/2 will be correct. Does that mean I know? Of course not, but I just say ‘I have no earthly idea’. I have no newletters to ‘push’ or special ‘morning calls’ to sell—everyone of these folks is ‘talking their book’. Very honestly these ‘gurus’ are kind of dangerous to the non thinkers–and I have concluded the number of non thinking investors out there is pretty massive–seems like most folks want to let others do the thinking–then they have someone to blame when their ‘stash’ goes south. I like the thinking of folks on this website–plenty of info to educate oneself and then make your own decision.
Last week the S&P500 moved higher by about 1.7%—not quite a record weekly close, but the close on Thursday was a record high close. There wasn’t really any economic news to push markets higher. Jobless claims were 223,000-about on forecast and historically fairly low–if folks are employed the economy marches on. Existing home sales are pretty quiet–they say the slowest since 1995–obviously the high prices and the somewhat normal mortgage rates (apparently not normal for anyone under 40 who is waiting for 3% to return) have stymied most folks. 2 high income families and old folks with cash in their pockets can do what they want–but that leaves a lot of folks on the sideline.
The 10 year treasury closed the week at 4.63% which was 2-3 basis points up on the week. Without consequential news movements were minimal. This week we do have economic news of meaning. We have the federal open market commitee (FOMC) meeting starting on Tuesday afternoon–then the ‘announcement’ and Jay Powell presser on Wednesday afternoon. Prior to the interest rate decision we have the advance estimate of GDP for Q4 on Wednesday morning. Lastly we have inflation numbers from the personal consumption expenditures (PCE) on Friday. If all that news doesn’t cause some market movements I would be surprised.
So are rates going up or down–or staying the same. For now I think they remain unchanged. There is no labor stress and inflation is kind of flattish–not at target yet–but just treading water. Almost without doubt Jay Powell wants to see more data.
The Federal Reserved Balance Sheet fell by a piddly $3 billion last week–now the balance is $6.832 trillion. Already the Fed has run off more of the balance sheet that I thought they could accomplish–the high point was right around $9 trillion. Certainly sometime in the next couple of years we will need to utilize the balance sheet for quantitative easing–so at least we have built a $2 trillion buffer (as compared to the high) of buying power.
Last week the average $25/share preferred and baby bond bounced back a bit. The overall average share was up 16 cents with investment grade issues moving 25 cents higher, banks up 18 cents with CEF preferreds up 8 cents and mREIT preferreds up 15 cents. All in all not a big up week, but at this stage anything green is good.
