Author: Innovative Income Investor

My old brain is tired–too much market activity this week I guess with interest rates decisions and market movements higher. So many capital gains in accounts (with a few dogs of course) as investors everywhere piling into preferreds and baby bonds and forcing one to decide if there are profits to be locked down. Some would say one just needs to sit back and enjoy the ride and in the end I think that is mainly what one should do–collect dividends and interest and not sweat the share price movement.

I did let go of 75% of the WR Berkley 5.70% baby bonds (WRB-E) and then 50% of my XAI Floating Rate 6.50% term preferred (XFLT-A). Both had good capital gains– I will re-enter the positions if we get share price setbacks to under $25. Additionally for those that noted my weightings in the portfolio both insurance and closed end funds (CEF) were high and this helps to get a bit more balance. Obviously this puts cash in the account which needs to be reinvested–dealing with ‘reinvestment risk’ now is a big problem. Does one move out the risk spectrum to garner yield?

The 10 year treasury is trading at 3.73% this morning–7-8 basis points higher than when the Fed funds rate cut occurred on Fed day. I find this very interesting and not helpful in some ways to the economy–mortgage rates are now just over 6% (for some borrowers anyway) and they are unlikely to move much lower if the 10 year treasury has plateaued. It is also interesting to note that 3 month SOFR has not moved even a basis point lower–we’ll see if this moves lower over the course of the next month. Lots of items to watch in the weeks/months ahead.

Well let’s get the day started and see if equity markets can maintain their record highs–no doubt fun times ahead.

Well markets have pretty well ‘melted up’ this morning–obviously not a sell the news moment—maybe a bit of a over-reaction. Of course yesterday after the 50 basis point rate cut announcement equities moved sharply higher before taking a tumble so no one can predict how this day (and week) will end up.

Interest rates–the 10 year treasury are up around 14 basis points in the last 48 hours and up 9 basis points from the low point yesterday—seems a bit odd, but not necessarily surprising. Short dated treasuries (1 month, 3 month etc) have moved lower in yield by 15-20 basis points–right about where one would think they would move with the fed funds rate cut.

One needs to ponder these rate moves for a bit before reacting—I am not doing anything willy-nilly and will let things shake out a bit.

I did sell 75% of my ‘sock drawer’ holding of WR Berkley 5.75% baby bonds (WRB-E). It was a rare case of a sock drawer sale–only occurring when pricing is irrationally higher. At $25.50 the premium was just too good to turn down. I may re-enter if shares fall back into the $24’s.

Another irrational holding in which I hold an overweight position in is the XAI Octagon 6.50% term preferred (XFLT-A) which is now trading at $25.22. Too high for an unrated issue that will mature in 18 months. Not sure where I would sell it–$25.30 maybe–we’ll see. I would re-enter under $25.

Well let’s see how this day plays out!!

While the interest rate cut and the following news conference from Jay Powell is obviously important I am looking at it more as entertainment. Just sit back and watch. Yesterday markets moved in a fairly wide range in the end they went no where. Today they are not moving at all–a very narrow range.

Many of the seasoned folks on this website know that there is nothing you can do except watch – you can’t buy or sell anything that might be helpful – you can only plan and invest looking at longer trends and at this moment that is that interest rates are trending down and with what we know TODAY this will continue. So we can watch data day in and day out without reacting to any singular piece of information and follow a longer term plan–ALL SUBJECT TO CHANGE with multiple pieces of information.

All my investment accounts are flat today–a disappointment always, but honestly accounts can’t rise like they have been forever. Income investors have had a heck of a run lately and we may have to shift some holdings to keep getting capital gains–i.e. buy low coupon, higher quality issues where there is upside to the share price–ASSUMING a continued trend lower in the 10 year treasury. Lots to ponder–but none of it urgent as we are well invested. We’ll see where we go.