Category: General Commentary

Although the futures are up quite a bit this morning (700-800 Dow points) I am under no illusion that we have seen the end of the sell offs as announcements of capacity reductions from the major airlines serve to remind one that there will be fundamental pain ahead. Of course no one knows when Covid 19 will peak–I suspect it will be awhile–a month or two.

Yesterday was pretty painful for our personal accounts with losses of 1 – 1.5%—virtually all in the perpetual preferreds that we own.  The ‘sock drawer’ issues we own did well–barely moving.  As we mentioned we snagged 1 CEF preferred yesterday at $24.99-the Gabelli Multimedia Fund 5.125% (GGT-E)–the issue closed the day at $25.46.

Today we will continue to study and watch the CEF preferred–and some short dated maturities in the baby bonds, although I have concerned with some of the BDC baby bonds as they may incur sizable losses if we do fall into recessions later this year.  If I make so buys they will be small positions–no use burning up dry powder as there likely will be plenty of time to find and buy bargains.

As tiring as these markets are everyone needs to stay vigilant.  We will reach a point–maybe in a week or 2 where we tamp down the wild trading and instead only move higher or lower by 1% each day–I would be quite happy with moves this small.

We know there are people that are very scared at this time–whether they are conservative investors or not.

No matter how great the bargains are in the market, folks that are laying awake at night because of fear of their ‘stash’ disappearing must do some thoughtful selling–it is human nature, and laying awake at night is not necessary – one has to do what they have to do.

I’m scared, but I am trying to stay mainly in either high quality, or very short duration (term preferreds and short dated baby bonds). While I may sustain some short term asset value hits I believe in the end it will work out because of high quality.

If one leaves the market the problem is when to get back in. I believe there are quite a few folks that left the market in the 2009-2010 that never re-entered which was a costly move, but folks have to sleep at night so everyone must do what they have to do.

I guess if we wanted a setback in stock prices we should be happy–but certainly we would all have been happy with 1% daily down moves instead of the 6-7% lower opening we are apt to see today.

I guess more worrisome are the plunging interest rates–this absolutely doesn’t bode well for the U.S. and global economy–the signals are quite clear now that we will move into a recession later this year. Lower interest rates are likely to provide modest and temporary economic support as folks refinance their mortgages, but daily mega doses of corona virus and stock market losses are likely to slam consumer confidence soon–we will be watching–this in spite of what is likely to be lower ‘prices at the pump’ for gasoline.

So what to do? AGAIN I will review our holdings this morning–I know I have 1 bad holding for sure and that is the Golar LNG 8.75% preferred–it is only a couple hundred shares. I may sell, but for sure I won’t add–honestly it was a mistake to have stepped into this particular arena to begin with. Last week I unloaded a portion of my overweight on UMH-D 6.375% preferred so will continue to hold this position.

I nibbled on some CEF ‘A’ rated type preferreds last week–BUT likely will not buy today, but this remains to be seen. I really would like some clarity in the markets and I am not seeing much.

So for this morning my plan is to review (for the 100th time) holdings and potentially sell an item here or there, but in addition continue to build shopping lists.

This too shall pass.

With an ‘all out’ oil war at hand and no good news on the Covid-19 corona virus it looks like Monday could be a really rock start for the week.

At 5 pm central time the DJIA futures are off around 980 points. West Texas Intermediate crude oil is trading around $30/barrel–a point at which we will probably see further cuts to any oil drilling. Of course this will benefit consumers, but whether the aid to the consumer will out weight job losses and knock on effects is a debatable point.

I watch Bloomberg futures here.

I am hopeful the market will ‘get a grip’ before tomorrows opening of trading.

I see the equity futures are up near 2% today–which means absolutely nothing except traders love the movements up and down. I think we all know by now that the coronavirus is going to mean the U.S. economy is going to take a hit–exactly when and how badly is the question.

The Fed went into panic mode yesterday with the 1/2% Fed Funds cut–I expected it, but think in general it is ‘balony’ (a technical term)–we already had low rates with a slowly softening economy and if someone believes that this will ‘juice’ the economy they haven’t been paying attention for the last 5 years.

Here is what I believe. I believe that we are slowly sinking toward recession. The corona virus will just give us that last push over the edge of the cliff. This could take 1-2 quarters to play out–and we will watch for further details, but you know there are more than 169 cases of the virus in the U.S. and that we will see widespread school closings and other business closings. The travel and lodging industry are going to be slapped pretty hard–and overall spillover affects will be pretty damaging.

With the above in mind I am continuing to watch the high quality, low coupon preferreds and baby bonds issues–i.e. CEF preferreds and utilities. I think in a few years we will look back and say ‘I wish I could get a safe 4-5% coupon’–well maybe the time to get some of them is now.

I bought some of the ELJ Entergy 5.25% baby bond last week around $25.00. This should be a good holding, but it is callable now so may not be around long. What I would like to have is the same coupon with at least 3-5 years until 1st call date–to try to assure myself I have locked in that rate for the foreseeable future with a quality company.