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Any Equity Rally Torpedoed By UnitedHealth

It only takes a singular giant sized stock to torpedo any potential stock rally–and as everyone knows UnitedHealth is the culprit today. But we also have economic news that is pointing a bit toward a softening economy. Global purchasing managers index is softening (as it has been for a year or so) further–but this includes the services component which had been holding up–til now.

On top of this we had weakening existing home sales and consumer sentiment. On top of this inflation expectations pushed a bit higher—as someone mentioned in comments yesterday–stagflation?

The 10 year treasury continues to drift lower–now off by 4 basis points at 4.46%. I am going to watch today–I have cash available to buy, but I am feeling lazy so will make it a low stress Friday and not buy anything at all.

Took a Nibble on a Gabelli CEF Preferred

I had mentioned that I might take a modest position in a Gabelli CEF preferred and I have done so this morning. My buy was very modest in size.

I nibbled on the GAMCO Global Gold Natural Resource 5% perpetual (GGN-B) with a current yield of 6.05% and trading around $20.67–which is the price I paid as well.

Here are my thoughts on this issue. It is rated A2 by Moodys and has a asset coverage ratio of 917% (as of 1/31/2025)–so we have safety covered in spades. The current yield of 6.05% is over my hurdle of 6%—but on top of this IF we get interest rates down somewhat (whatever that means to each of you) this issue has potential for 4% capital gain (or more) in the next year.

I am now leaning toward rates moving lower. Walmart earnings seem to indicate the economy is softening a bit. Employment remains relatively strong, but I am starting to believe we are going to have issues ahead as I am thinking the administration will lower headcounts on the government payrolls and while this in itself may not be a massive number (although there may be cuts in the private sector as well) in combination with some level of savings through spending cuts the economy will slow. For the time being this will be viewed positively by bond investors and will outweigh my never ending concern on the deficit spending (for now).

Now if we get rates moving higher based on the Personal consumption expenditures number which is released next week it will mean I am too early–but this position is small and little damage will be done.

Forcing Myself to Buy

With current interest rates I have found it difficult to be buying much outside of the safe 4.3% CDs – being a total return investor I don’t want to take capital losses in perpetuals if interest rates start to move higher once again. Because of this fear (maybe too strong of a word) I have relegated my buys to short duration term preferreds and baby bonds–and even these I have been very cautious.

Last week I noted that the XAI Octagon 6.50% term preferred (XFLT-A) was trading around $25.00-25.05–an issue which I already hold an overweight position in. Even with the overweight I did buy a few shares–I rounded my position up –I bought all of 45 shares.

In addition I bought

Additionally I bought some more of the Wintrust Financial 6.875% fixed rate reset perpetual (WTFCP)–specifically expecting the issue to be called on 7/15/2025. I paid $25.19 so I gain a little advantage over holding CDs etc–but not a huge long time advantage unless they don’t call it in which case the advantage would be huge for how ever long it is outstanding. The reset is likely to be over 10% so I can’t imagine them not calling it—but stranger things have happened.

So what is next for me? I have CDs maturing pretty much continually in one account or another so I have to make a decision on a non-stop basis. I am pretty sure that I will be looking at the Gabelli CEF preferred–one those with a current yield of 6% with opportunities for substantial capital gains–i.e. they are trading at $20 or so. Obviously I would like to be pretty confident in interest rates moving lower–of course who can predicted that with confidence? Other CEF preferreds will also be considered.

I will get my new purchases posted to the laundry list of holdings page later today.

Equities Still Near Record Highs!

We have almost daily chaotic events in the government and interest rates which are pretty stubborn about coming down–YET equities are still near record highs. The S&P500 closed yesterday 6115–against a record close of 6128. Crazy strength given the uncertainties that surround us.

Today I will be buying a fixed rate reset preferred–one that is very likely to be called in July–thus only 2 dividend payments. The Wintrust Financial 6.875% issue (WTFCP) gets reset in July at the rate of they 5 year Treasury plus a spread of 6.507%–I don’t think there is any way that this strong banker lets the rate get reset to the 11% area–of course maybe one would be lucky and get an extra quarter of high yield. Of course this is a temporary play intended to get a slightly better return than CDs and money market.

I continue to debate with myself adding a nibble more of a fixed to floating rate mREIT preferred of which I already own numerous issues, BUT I always remain cautious about going over board on high yield–they are high yield for a reason. Earnings released from the mREIT issues have remained pretty darned good, but one knows how fast this can change. My understanding of all the moving parts of these companies is not the best–I can slice and dice the financials of General Motors, General Mills or equity REITS with the best of them, but not so with the mREITs.

I look at perpetuals and so badly want to buy some–but why? To buy more perpetuals at this time I have to be able to convince myself that there is a capital gains component–and I sure am not certain that now is the time–certainly a view that reflects my conservative nature.

Retail sales just came out and they were soft–not really a market moving number though although the 10 year Treasury is of a basis points or two at 4.49%–we’ll see if these rates can break out of the bottom at 4.40% or if we are stuck around 4.50% for the balance of the month.

Don’t forget that markets are closed on Monday for Presidents day.