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Consumer Confidence Crumbles But Markets ‘Party’

The final readings on consumer confidence for May were released today by the U of Michigan and the 50 reading was the lowest on record dating back to the mid 1970’s.

While the consumer is crumbling under the weight of high energy prices and skyrocketing food prices the markets are ‘partying’ today with the S&P500 up 2.56% at this moment.

The 10 year treasury yield is up a bit today–about 5 basis points to 3.12% and it looks like we will be treading water on rates for a few days–maybe until next week when inflation numbers are released.

With all the current cross currents in markets I am just sitting tight–I have between 20 and 30% cash dry powder but am looking for lower prices in preferreds in weeks and months ahead so no hurry on deployment this cash–of course who really knows where common stocks, preferred stocks and baby bonds and interest rates are going–NO ONE. Of course the trick is to invest the last dollar on the day preferred stocks hit the bottom–good luck accomplishing that trick.

15 thoughts on “Consumer Confidence Crumbles But Markets ‘Party’”

  1. I love to look back at charts of the 2001 and 2008 bear markets. There were rallies that almost got back to the previous highs. There were people saying every 3-day rally meant the bottom was in. I’ve learned to recognize the bottoming process in the charts.

    Wall Street will get lots of their people on TV pumping stocks. They will be selling the rallies, covering on the drops. Same for hedge funds. My job is to remain calm and wait for the fed to actually pause. They won’t do that until there is a good reason. Meaning recsession and unemployment. Good buying opportunities will be there for a few months.

  2. Grid, BTW, have you considered a foray into MREIT prefs? . I know it’s a slippery
    Slope.. and generally fraught with many areas you can get screwed, but prices have come down a ton.. and there is indiscriminate selling as if all MREITs were doomed.

    When you peel back the layers, some MREITs aren’t that complicated. And throw in the fact that they are more incentivized to stay afloat reward than common holders, the prefs look solid.

    Laziest of dans is a good follow on Twitter, prob more skeptical than you, and he used to work for a MREIT and is a large MREIT pref holder.

    1. Maine, its just not a comfort zone for me and never has been, though I do have relative big slug of RCA that matures next year. Reentered again recently around 25.40 ish range and bought more and more down to 24.00 range. That is probably that unless I dabble a few hundred shares here or there just for heck of it, as I have humored myself at times doing that. And this doesnt mean I know anything because I dont. I just know March 2020 many of them had to suspend payments and nobody saw that coming, so there has to be some complications somewhere. And they got torched several other cycles I watched from afar past 15 years or whatever.
      There certainly wasnt any concerns of Wisconsin Electric suspending their dividends during that time….Inverted yield curves, leverage, no credit ratings, trusting management is too much for me to get involved with. A lot of Mreit experts I read say X is a good buy only for it to drop hard for some one off reason they didnt know was going to happen nor could see happening. An issue like say CMS-C is just not hard to understand. It drops in general just because interest rates are rising, credit spreads are widening, or simply more sellers than buyers. That is enough complications for me! I personally want to see that thing get to under $17 again, to reenter.
      …..And keep in mind nothing above would suggest at all that you are not 100% correct, because you may well be. Im just sharing why I am close minded to them. And as you can see, it should have zero impact on your thoughts though.

    2. Maine, which REITs are you most heavily invested in preferreds? That’s my specialty though I don’t claim to understand them. Make money trading between them and collecting dividends.

      1. Martin. Yeah, investing in MREITs can be like playing with fire, but I like to think I can contain it. I am very excited about MREITs prefs here but here grid brings up a good point noting they could trade in the 5’s, hence it’s god to keep some dry powder..

        Rel value varies by the day..
        Semi safe- PMT/C, NRZ/D
        Mid of the pack – FBRT/E
        Risky- MITT/C, NYMTN

        Pmt has a pretty good track record, including MSRs which can offsett losses from mortgage duration extension. PMT/c doesn’t have the best yield, but I like the upside for when things normalize. Like others have said with NRZ/d, no way they keep this thing outstanding if rates stay the same by call date.

        FBRT – simply said, it’s mostly backed by apartment building loans, and there is no way Franklin let’s this puppy fail.

        Mitt does not have the best reputation.. so they should trade wide but it’s not like Angelo Gordon are idiots. NYMt is backed mostly by residential housing and I just don’t see that falling off a cliff, plus their leverage is around 1x last I looked.

        What names you like?

        1. NRZ-D is my largest holding. Seems a bargain and favorably priced compared to other NRZ-s, tho there is money to made swapping some shares when the prices diverge.
          I have a lot FBRT-E unfortunately bought near par at the time of the acquisition from CMO. much too low to think about selling.
          I hate MITT’s but I do have 500 shares I trade between them on price divergence, essentially doubling the return making worth the risk, NYMT’s also, not quite as risky but harder to trade on the wide spread. and a pile of RTLPP I thought was on fire sale but was mistaken, sitting at a quick loss looking to unload some.
          In the past I traded to old dogs NLY’s and AGNC’s until the returns got too low., inching back in now Was heavy into CIM’s for awhile but not now. A limited amount of TWO-s. PMT-s worked at one time but haven’t much success with it lately. Various others I dabble in typically at div capture time.

            1. ABR is ok I suppose. Playing the spread was a slow process for me so I don’t follow it as closely as others. grid had success trading it back when it was pinned to par.

  3. Tim…As far as bottom picking is concerned, there was a recent t.v. spot where Leon Cooperman made the observation that you likely don’t sell the top or buy the bottom because if people could do that the top would become the bottom and the bottom would become the top. People like to think they can but as I look at my own record, I have been early, on time, and late, many times for each. That’s why I feel most comfortable with dollar cost averaging, with a bias toward my expectations. Generally, I like to make my moves incrementally, both buying and selling. Gives you a better chance of being “spot on” with at least one transaction out of the series.

  4. Everything is having a party except SJIJ, sitting near lows of $17. Has anyone been tracking holding by the ETFs? I’m wondering if they still have a lot left to sell, or will wait until they get de-listed before dumping at an absurdly low price.

    I honestly don’t find it super attractive at 8% yield. Much rather buy a DCP bond yielding 7%+ with a stated known maturity and better long term liquidity.

    1. Maine, Chronic underachiever PFF has over 600,000 SJIJ shares out of an 8 million share float of SJIJ. Who knows how many other bit playing preferred funds own it and what their charter states on ownership. PFF managers have had a history of dumping shares in haste in order to get to that more important 2 pm tee time, so a much lower price could occur if merger goes through.
      Factoring the credit rating, being a utility, and duration risk, one is probably getting in neighborhood of a 150-175 ish bps risk benefit. If one assumes it is going to experts markets, and funds will dump shares, and interest environment stays same it appears logical a strong possibility of a lot better price opportunity could occur.
      Rule 15-2C unless I have missed more recent developments is supposed to be applicable to bond market. They have a BBB- 2031 subordinate 5.02% note that is now down to 88 range. This may be effected also if those regs are applicable. 2031 note is actually a remarketing from one of those goofy equity units offering that termed out in 2021 and converted to this note. Same cap stack as SJIJ, however the deferrable feature timed out in 2021. That has to be the sole reason it has a one tick higher credit profile than SJIJ has.
      I bought at $17 and sold them at 18.25 pre exD last month. Which only got my money back from the ones I bought at $19. It leaked under $17 a few days ago, so I bought a small amount to stay in the game. I will keep an eye on these two though.
      The perfect scenario for me would be a dump on both. And then acquirer later supporting that bond by providing info which would also keep SJIJ in the pink sheets. Certainly not base case reasoning though.

      1. Grid, good assessment as usual. This thing was a good value a month ago at these prices, but less so now.. 175 bps extra not enough to justify zero/limited ability to sell down the road.

        Looks like the common has about 6% upside to the merger price, $34 current price $36 buyout price, meaning the market generally thinks it will happen.

        1. Maine, I would have to agree and assume worst case it will get approved. A regulator did say this..
          The New Jersey Division of Rate Counsel also declined to comment on the proposed deal, saying the office has yet to see any filings. The office will look to ensure ratepayers’ interests are protected and there are tangible benefits to customers of the two utilities.

          “Since it appears a fund rather than a utility purchasing South Jersey Industries, we will need to look at that and determine what additional ratepayer protections are needed,’’ said Brian Lipman, director of Rate Counsel.

          Its all within one state boundary so that cleans the approval process up. This may drag out and approval may not happen until next year some time. The regulators march to their own clock not the companies. As of today if the go private rout drops it into the $15 handle, it would be too good of yield to pass up as an annuity for me. The main entity of the eventual subsidiary Hold Co is South Jersey Gas and company has already stated full intentions of it maintaining IG credit status. Regs may require that anyways making it a moot point.

          1. Grid,
            Thanks for the update. I did follow you on this one. Still showing some unrealized gain, better than most. IMHO, it sure looks better than FATBP, which I managed to sell them all without net loss. I did not follow someone at Silicon to re enter FATBY. I have some legacy position on RTLPP and its sister RTLPO. Fidelity analysts had no opinion on the parent, which seems to pay small dividends to the commons. Schwab.com gave RTL a B, believing that it is good value?? I wonder how Schwab rated CDR, which once upon a time a corner grocery chain, not supposedly mimic Wheeler. LOL. I sold some EVA, renewable energy which were marked at loss to entice German and Japanese customers. They suffered some significant loss. Then Dividend Channel claimed owner bought some shares. This is still speculative and I wished I sold earlier. I continue to hold EVA, could be safer than the EPD (close to 52 week hi with some draw down in recent trade days.) FAST MONEY continue to advice energy. Replaced the proceeds with Tim’s swans and took some cash back. Then it was and never will be their money. LOL.
            I am still holding all my mREIT preferreds. NLY and AGCN and most of the other ones never suspended dividends during the near financial collapse. I remember that either NLY or AGNC issued more preferreds to pay dividends to the commons. Nuts.

            1. John, I personally would like to double what I have provided the price drops to that level, we shall see. I really just in a holding pattern in hiding out issues and grinding the income. I have thousands of CNIGP shares I am essentially trapped in until they are redeemed in next month or so at 29.70 plus divis. Once PA approved this last winter, I got every share I could get my hands on mostly in $28-28.50 range. And this was on top of my purchases several bucks lower last year when it was first announced. Then a couple thousand of WTREP will be redeemed next month. And I have as much in BKEPP that will likely unwind at some later point from buyout. Same thing with RCA though it has a year of life left. So for me, I will have a relative huge dump of cash coming my way soon that I will have to figure out a plan for. I dont mind waiting though.
              I really have largely not been playing a lot in pure fixed perpetual area. Reset WCC-A dropped other day down to $27.29 so I bit on a 400 entry purchase after a profitable quick divi flip play on it a few weeks ago. That thing might as well have term dated stamped on it over reset. Really only perpetual I have sunk my teeth in one perpetual recently getting 400 shares of WELPM. My $106 entry point is largely a 12 year low despite the relative low yield of 5.6% range. Those types really arent of interest to you.

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