Author: Innovative Income Investor

I am curious what everyone is up to – generally speaking. Are you buying? Booking some profits? Or simply mainly holding?

I have noticed a couple ‘schools of thought’–1 school is that prices of preferreds and baby bonds have risen ‘too far, too fast’ and some profit taking is in order with the hope of rebuying at lower prices. The other schools is simply more of a ‘buy and hold’ strategy–watch currents investments and collect the ‘spoils’.

My own method now is to try to trim around the edges a bit and buy the top quality I can with proceeds of the trimming. Of course the top quality issues have risen quite a bit in the last month or two and thus are no longer ‘raging’ bargains. This leaves me in a bit of a conundrum thus the trimming is pretty minor. I have historically been a bad market timer and once I exit I don’t get the cash reinvested in a timely fashion thus hurting my dividend and interest flow–of course the negative of having too much cash is cushioned by the fact that we now receive a relatively generous bit of interest in money market funds.

I did trim the Eagle Point Credit 6.50% term preferred (ECCC) on Friday–I had a bit more than a full position and with the net asset values (per common share) of the specialty finance company’s getting hammered pretty good recently I want to observe their coverage ratios a bit in the potential coming recession. These company’s have been excellent at raising new money through common share sales and thus the coverage ratios have held up–but if we get a true recession will they be able to raise cash in an adequate fashion to maintain coverages?

I now have around 6% cash in our accounts so not too harmful to cash flows–but should I be raising cash and looking for a better opportunity?

After weeks of decent gains it seems like maybe we move forward for the next 10 days with dependence on dividends and interest to move our account balances higher. Interest rates may well be at a level which will be sticky until the January 30/February 1 FOMC Meeting. This morning we have rates up 7 basis points to 3.47%.

Today we had no real economic news to move markets–but Monday we do have the leading economic indicators for December and on Tuesday we have the S&P manufacturing and services indicators. Each of these are semi-important numbers and will figure into the Fed rate hike on 2/1–although this hike is getting pretty well baked in at 1/4%–personally I thought 1/2% would be the right number based on strong employment–but I am very much in the minority on that number.

Today I am going to pull up my accounts and go through them and make sure I am balanced the way I want to be balanced. I have some full positions in some dicey issues that I may want to shift to some higher quality issues. For instance I hold plenty of the Eagle Point Credit 6.50% term preferred (ECCC) which has gotten a decent bounce back this month and I may want to trim it a bit and move it to one of the community banks–not sure what I will do.

While it was a tough day on Wednesday for common share prices income issues hung right in there–essentially flat on the day.

With the producer price index (PPI) coming in favorable to forecasts and retail sales coming in soft the 10 year treasury tumbled 16 basis points!!! The closing yield of 3.375% is the lowest close since 9/12/2022–about 4 months ago.

Right now the equity futures are off about 1% —while interest rates are essentially flat at 3.38%. Things can change in an instant of course so one never knows and in fact as I type this jobless claims just came in at 190,000–way under the 215,000 forecast– and interest rates are popping some and are at 3.41%. Once again employment numbers remain stronger than expected–so this once again reaffirms needs for higher interest rates (at least in the eyes of the Fed).

So here we go after 8 straight days of income issue gains–yesterday was flattish. I will be out of the office again today, but back in tomorrow. I plan to closely review our holdings tomorrow and see if there is a need for some tweaking after recent gains–I remain nearly fully invested and plan to continue to remain fully invested.

Seems like we are always waiting on some type of economic news—today it is the producer price index (PPI) which is expected to be slightly negative for December–as always a significant deviation could move markets sharply.

We also have retail sales today which has become somewhat important recently as everyone scans the horizon for signs of a slowing economy–this is also forecast to be negative – by 1%.

Right now equity futures are up a very small amount—1/3% on the S&P500 as we await news. Interest rates are at 3.46% on the 10 year treasury which is off 6-7 basis points from yesterday. Of course we all knows this can change instantly.

Yesterday the rally in income issues continued–in a very small way. Since I am out of the office I am not contemplating any type of buying or selling–maybe next week.

After a relatively quiet day yesterday equity futures are just slightly green this morning. Interest rates are off 4 basis points or so at 3.46%