Author: Innovative Income Investor

The party in the various markets are continuing for now with the S&P500 up near 1% and the 10 year treasury yield off a few basis points at 4.57%.

Our portfolios are showing some decent gains on the day considering the large allocation to CDs and money market funds.

Personally I feel a need to see get a ‘feel’ for what the new administration is bringing to the party. It is so difficult for all of us to get around the ‘no politics’ comments right now–so I will just say that I need to see some info on tariffs etc before I can even consider buying into any perpetual issues—these markets are very susceptible to either a melt up–or melt down right now. So many unknowns.

So of course, very boringly, I am sticking to short duration issues. Of course this is a sector with limited offerings. Either term preferreds or baby bonds with maturities of 5 years or less. While it is boring playing the waiting game I would rather miss a few percent of gains than pile into perpetuals and have politics do a ‘rug pull’ on me.

Markets have gotten a lot of milage out of inflation numbers that were ‘not too hot’ and ‘not to cold’ and now the S&P500 is just 1-1.5% off of all time highs–quite remarkable given the circumstances. The old saying of ‘markets climb a wall of worry’ is certainly true right now.

The push higher in stocks and the now 20 basis point drop in the 10 year treasury has certainly been productive for our portfolios, which have moved to a modest all time high (remember my wife and I do not withdraw any funds from accounts–at least we haven’t thus far). If I wouldn’t have chickened out holding many perpetuals gains would have been better this week–hind sight is 20/20.

Next week we start off the week with a holiday on Monday so there is no trading. Then the week has very little economic news of consequence–by all rights it should be kind of a quiet week–we’ll just have to wait and see whether that plays out.

When I think (whether I am right or wrong) that interest rates are stabilized and maybe moving lower here are some perpetuals I would like to own.

Federal Agricultural Mortgage (AGM) Issues. Rock solid financials and good current yields.

Lodging REIT Pebblebrook Hotels (PEB) offers mid level quality with darned good current yields. PEB has quite a few California properties and I am not aware of an update being released relative to wild fires.

National Storage Affiliates (NSA) has a good mid level quality perpetual outstanding which is down $3/share in the last 4 months and could provide some nice capital gains IF rates move lower.

These are not recommendations of course, but issues that should move high and provide some capital gains if the 10 year treasury can begin a long and sustained move lower in yield.

Markets parties pretty hard yesterday giving us some nice green to the portfolios—very nice given the number of red days we have seen lately as interest rates raced higher. It seems investors are a little giddy over a CPI number which represents 1 data point–in a sea of data points.

So now with bouncing prices it is a good time to review portfolios and determine if you are well positioned–at least well positioned according to where you think interest rates (longer duration rates) are heading. Do you have too many perpetual (if you think rates are going higher)? Or too few perpetuals ,which could see decent capital gains, if rates move lower.

I am well positioned, for now, with my personal thoughts that rates are going to trend pretty much sideways through the next few months. My primary thoughts are driven by what I believe will be the difficulty in reducing government spending thus keeping rates elevated.

I see that I got paid today for my Trinity Capital 7% baby bonds (TRINL) which reached its maturity date. It is likely that I may add to my Eagle Point Income 7.75% term preferred (EICB) or buy the 8% term preferred (EICC) with part of the proceeds–we’ll see. Eagle Point Income is the CLO debt focused closed end funds which makes it relatively safer than the other CLO closed end funds.