Category: General Commentary

Today ChuckP posted an article that is currently on Barrons. It is not unlike many we have seen in the past and most of us that have been investing in baby bonds and preferred stocks are well aware of the risk that is out there.

We are posting this because it is a reminder that markets are dangerous and even if you own bonds and preferred stocks there is danger. Newer investors in these areas need to know that it isn’t just about earning an easy (although modest) return by collecting interest and dividends.

Essentially it is reminding investors that chasing yield is getting a bit carried away—of course most of us know that, but it has been going on for years–when does the music stop?

Here is the article “Ponzi Market”. I believe Barrons will allow you to read this once only before the paywall comes up.

This is just in case others were unclear as to the status of the dividends paid by Triton International (TRTN) on their preferred stock. The prospectus on the issues have always been unclear as to whether they pay qualified dividends or not.

ALL DIVIDENDS PAID ON THEIR PREFERREDS THUS FAR ARE ‘RETURN OF CAPITAL’.

Data on the status of the various dividends can be found here.

As most of you probably know when a dividend is designated as ‘return of capital’ it reduces your cost basis of the shares.

For Instance—

If you pay $25 for a share and receive $2 in return of capital distributions your cost basis in now $23. If you sell it for $25 you will have a $2/share gain since your cost basis had been reduced to $23 through receipt of a return of capital distribution.

The return of capital is not taxable – but upon the sale of the shares you may have a capital gain (or loss) and you will need to then pay taxes (if in a taxable account).

Yesterday we had 11 income issues go ex-dividend and I thought that might skew the average share price a bit–but in this market of yield hungry investors the ‘markdown’ of those 11 issues wasn’t enough to stop the move higher in prices.

Today with 47 issues going ex-dividend I am fairly certain the average price will stop going higher–for a day or two anyway.

Yesterday the average of all $25 issues moved 2 cents higher–although we did see the banking sector drop by 6 cents-the only sector to fall.

We all know that tomorrow the monthly employment report for December will be released.

Is it likely to be meaningful to markets? No, I don’t think within a reasonable range it will be meaningful for longer than 2 hours–then the stock market will move higher.

But really–the expectation is for 160,000 new jobs being created in December. ADP showed over 202,000 new jobs in their report on Wednesday–of course no one really pays much attention to ADP. Just the official government report has power to move markets–occasionally.

Of course I have no idea what the number will be, but any huge outlier number could move markets. By huge outlier I mean something like 50,000 on the low end or 300,000 on the high end. When the number has missed by a fairly large margin (20,000-50,000) recently there have been almost no reaction after an hour or two of digestion So tomorrow if the number is 50,000 nervous nellies will yell ‘recession’. If the number is 300,000 interest rates would move up by a few basis points and folks would yell ‘higher interest rates coming’.

In the end it is highly likely the stock market will end higher Friday and interest rates (measured by the 10 year treasury) will move in a tight range of plus or minus 2 basis points (from the current 1.86%).