End of Day Rally Felt Good–But Fed is in a Box

Seldom do any of us say that we feel good with a 356 DJIA loss, but it sure felt good.

Unfortunately I am afraid the Fed has put themselves in a ‘box’–back to the same old thing where the Fed yaks and the market prices in a rate cut. I guess everyone can have a good weekend, before we are back at the computer Sunday night.

I think we are going to see coordinated global interest rate cuts Sunday night–with the 10 year treasury at 1.12% a 1/4 point cut would still leave Fed Funds above it. I hate the thought of the rate cut (I’m talking my book here)–I don’t think it is helpful, plus us income investors will see our meager 1.50% money markets returns melt away.

If we don’t get coordinated Fed activity Sunday night I am afraid we will see a weak open again on Monday–but absent serious virus news on the weekend we likely are moving toward a base (famous last words).

Well for now I am done until tonight at which point I am going to survey my portfolio damage and get serious about putting together a shopping list.

37 thoughts on “End of Day Rally Felt Good–But Fed is in a Box”

  1. To Tim and my newfound friends; I have only been on this site for about 3 weeks or so but truly enjoy it. In combing thru my entire portfolio this morning I thought I would share some ideas that actually went thru the blood bath last week and might be worth buying them. I already own a ton of these so thought I would share them and you can do your own due diligence. In no particular order here they are: DDT, INN+D, INN+E, EQH+A, and F+B. Hopefully you guys will return some ideas to me. I also noticed lots of others that took a pretty good hit last week but they are still priced pretty high to my way of thinking.

    1. Chuck, Like you I try to rethink everything over the weekend every weekend. Sometimes I get too hunkered down into select issues and get myopic. It usually always works out very well, but its not wise for any duration. For example, a couple weeks ago I had over 30 preferreds, now I am down to 15. And it isnt from raising cash, Im just piling in deeper into “trust worthy” issues. I dont have the universe of preferreds to invest in as there are many sectors I just will not buy. But there becomes a point where concentration risk outweighs safe harbor though.
      And too be honest I had no idea I had $40k of CTA-B until I checked. I thought I had $30k. I guess I got too excited when it got under $102. And I have no idea in hell how it closed at $104.98 on a bigger last day one time purchase from someone that drove it up.
      And dont think someone isnt rigging pricing…Take EP-C, last minute of trading day bid was 49.87 and ask $50. I had enough scrapes left over for another 90 shares so I gambled for an intercept and sent market order and it hit at $49.89 I think. There was only one last trade after mine and it posted $50.98. Huh? It never came close to trading that price all day as ask was right at $50 or close to it all day.
      If something on the periphery of my interest level sinks more, I would cough up some EP-C or IPLDP to buy as I am considerably over concentrated there from buying repeatedly over recent past weeks time.
      I did go back and buy more STAG-C yesterday also, and am glad I bought my limit there. Dec 2018 is your baseline for preferred craziness with many dropping 20% in short order. STAG-C stayed strong like a rock star and what little drop there was quickly recovered. Look at the price chart of this issue. Throw in the 5 dividends before hitting first (and most likely) call date and your banging out a plus 5% return with considerably higher yield going forward if it isnt redeemed. The market is finally giving one a shot at a decent return on it holding until first call which it largely hadnt for the longest of time.

  2. Here’s my 2 cents. The fed will cut because the bond market is forcing them to. Leaving the yield curve inverted always leads to recessions. The market takes the elevator down because of margin calls and when the Vix gets over 20 funds are forced to de-risk. I think we will get a dead cat bounce next week but we will retest the low and break lower. 2728 is support and close to a 62% retrace on Spx. If that does not hold you have a trend line from ‘16 that comes in around 2600. Break that and 2346 is next. Let’s hope I’m wrong and we get a v shape bottom from Friday’s low. ATB

    1. Good analysis TimH…technical levels are useful guideposts to be aware of during a market selloff. The algorithms that dominate the daily trading pay attention to them, even if us humans for the most part don’t.

    2. Tim
      Search for Coronavirus Vaccine by keying in:
      “Galilee Research Institute / Israel”
      They will be among the first to come up with a vaccine and
      supposedly very soon, based on reports.
      Add a bit of hope to your readers !
      Howard

    3. This panic is irrational and unsustainable. I watched an interview of a man who is currently in quarantine and currently “recovering” from the covid-19 virus. I think he is in his 60s. He said he had had just the mildest of symptoms. Another man in the same facility with the virus had no symptoms. I think this panic will die out when it’s understood that if you’re healthy and you catch it you will most likely just stay home for a few days.

  3. Bought more VER-PF and reopened position in NGLS-PA (below par!).

    Both are monthly payers, which I like.

  4. I am looking for insight from for the well seasoned experienced investors here. I own both traditional corporate bonds in AT&T (matures 2057) and also their baby bond (TBB, matures in 2066). This last week, my traditional bonds (AT&T, and others) were flat or slightly up, while the baby bond dropped from around 4% from $26.5 to $25.5 Both type of bonds have the same BBB rating and are senior unsecured. Why the difference? Many investment grade Baby Bonds now have very attractive yields, but I suspect they could in the short term fall like at the end of 2018, but I also imagine they will recover in relatively short order.

    1. Derek, it has to do with liquidity. When people/entities are raising or needing cash they sell the most liquid. And baby bonds being on exchange are more liquid. The muted reaction from your traditional bonds is because the IG credit spreads remain pretty tight.

  5. This my attempt at a civil hate mail!

    PLEASE do keep partisan and what some may find obviously wrong / ignorant world view and political rants / conspiracy theories off this nice site.

    If you have ideas and opinions about the Fed that do matter, sure share them here even if they disagree with the 99.9% but do keep the politics out of here…

    1. Totally agree with you…thank you!

      A WAY too political comment (and, as you say, largely inaccurate)

  6. Some believe the green at the end of the day might have been funds rebalancing. Not going to try to catch any falling knives in the common stock lists but the preferreds are beckoning. PCI, a closed end fund which I’ve always admired but could never pull the trigger because of the excessive premium, is now within reason.

    1. Vin-
      PCI still trades a couple percent over NAV, probably better to watch a bit longer. The same can be said of other pimco funds such as pfn . Many of these holds lots of mortgage backed securities and over the years have done quite well. I own pci and would buy more if it continues to decline. Good luck either way SC

  7. The ‘Plunge Protection Team” when. into action the last hour.I think this is far from over. Look at the Schiller Index the market is still 50% over valued. Everything is being blamed on the Virus, but in reality its just an overvalued market with an “outlier” as the. excuse. I proceed with caution

    1. You are right on Max. For the past several years, the 1st QTR GDP has been weak. Now, with the virus, I suspect companies are gonna to try and take any losses they can and blame the virus for everything. It will be a very convenient excuses for not making numbers. Apple/Microsoft are already warning. Let’s see what other’s do in the next few weeks.

  8. A little more green showing up in after hours trading. Maybe a good indicator for Monday, I couldn’t resist any longer and started buying 1/2 positions in 4 new to me issues, and doubled down on one other. Hope I don’t need stitches Monday from the falling knife. Regardless, I feel good long term about those buys. They are mostly issues I refused to chase when they opened strongly and ran.

  9. My prior comment was probably caught up in the spam filter.

    The issue with the Fed is we appointed somebody as Fed chair who didn’t not have the qualifications. This position needs an highly educated economist. Mr. Powell had an bizarre strategy to overshoot on Fed rates. Almost all the damage the Fed has done was done under Powell’s leadership. Even now, he doesn’t want to cut short term rates as per his last news conference.

    Powell will not be reappointed if Trump wins. Powell will not be reappointed if the democrats win.

    Obama had good fed chairs. One he inherited with Ben B. One he appointed with Janet Y.

    Trump has not had a good Fed chair and you can carve my words in stone about Mr. Powell’s future at the fed.

  10. Many preferred stocks did not have time to recover some losses. As usual equities are the more reactive asset and credit suffers from a doubly whammy is situations like this. Anyway I don’t have the skill and the will to play with E-min futures.

  11. Tim – I think we will all be giving the portfolio a look this weekend and plotting strategy for next week.

    And I echo your comments on the Fed. No Fed rate cut is going to put the virus thing back in a bottle. This downturn is not a financial failure in any real sense and putting more liquidity into the market can’t do much.

    The real question for me is will the virus thing be the catalyst for a broad economic downturn? Not beyond the realm of reason.

    To get somewhat political (I take aim at all political parties here) it would be a lovely time to revisit the law of vaccine liability. Under present law vaccine makers have no liability for MANDATED vaccines, but none for those that are not mandated, such as any Corona vaccine would be.

    All vaccines result in serious side effect, and deaths, in a small percentage of those receiving the vaccine. It’s not a defect, it’s not negligence, but nonetheless the law suits will happen. Thus, a very large price of the vaccine price will be the cost of tort litigation. The law of vaccine liability also keeps many potential vaccine makers out of the market. Strict liability (not based on negligence) is dumb public policy.

    1. I have no idea what will happen but IMO the sell off is wayyyyy over done. Across the board. Most of my stuff went from +8 to +12% to -4 to +2%. Many good deals developing out there.

      My belief is the pfd sold off just as a OK take that MF’er you aren’t immune. Also people need to raise cash (too many over long equities) so they sell what they can. Much easier to bail on a 6 around par and have some juice…then bail on a blue chip down 18% in a week! In other words you sell what you can

      1. Totally agreed “you sell what you can” a lot of my more liquid preferreds sold off more than the less liquid. With sub the low rates now… don’t you think everyone will be piling into the high quality preferreds when the dust settles. Been a buyer on way down. Give me more pain please.

  12. Well ladies and gentlemen if the Fed indeed does cut sunday night then here comes the invasion of the 4.5 and 4.25% preferreds. LOL

    1. Even without a Fed cut that is going to happen. The 5 year is currently at 0.95% and the 10 year is at 1.16%. The Fed cut will not have a meaningful impact of the 5 and 10 year bond rates.

    2. Rate cut would be a short-sighted mistake. Again. Let the market correct now instead of kicking the can down the road.

  13. The end of session rally today didn’t make me feel good at all. Not in the least. I wanted to buy more on-sale items & was so frustrated I almost bought WELPP at a sub 4% yield. I had to step away from the computer, go outside & pull a few spring garden weeds that are already bursting forth in this lovely weather. So there’s that. 🙂

    Ah, well. Monday’s another day. Enjoy your weekend, everybody.

    JMO

    1. Camroc, that is hilarious… You took my love for utes too seriously! Seriously there was 300 at $91 sitting there I saw like you. I gave it good pause to reflect. But it really has not sold off and was selling for that price pre exD earlier in month, so I walked away and bought more industrial reits. I also have some of that low yield stuff already and that was a big reason and the fact the free money was in tax free also.
      I really think if you are willing to look at a low yielder pay attention to CTA-B. Its not chemical its a spun off Ag company specializing in Ag seedand Ag tech. Dupont in its new configuration is a subsidiary of Corteva now. They have an A rated debt profile and solid outfit not over leveraged. I made $3 bucks a shares on about a 300 share quick flip, bought 100 back $1.50 below my purchase price and then promptly lost that $3 dollars anyways, ha. Undeterred I have bought back the other 200 under $102 and ready to let it all play out.

    2. With all my shipper preferreds smashed big time by the Coronavirus fear. CNBC pundits call this Demand Destruction. I still favor Brookfield renewables. Bought too many preferreds paid way too much, with some $485 unrealized loss. Compared to EPD, BEP still experience much softer decline. Taking TIm’s advice, I bought a tiny test position on LMHB. 5.45% interest ex div in March. LMHB was unloved despite Moody BAA2 and SP BB+ when it was first issued. My own thinking is: Legg Mason, the old mutual fund was never a Gabelli. I paid $24.9 a few minutes ago EDT 11:32 am now. Someone at Silicon commented this as DUMB. This is okay with me because the Feds are strapped and probably will reduce the rate, actually not a great idea, from all the CNBC pundits, former Fed members and political pressure. Preferreds will come back before the common IMHO. I probably should bought some EWBC, smashed but their customers in the US gave them lots of non interest paying CASH. I do not want to gamble on commons anymore OR eREIT OR any BDC except keeping my ARCC.

  14. I took a relative ass beating past couple days. Been spoiled for a long time, but still I have more than I had last month so it isnt so bad. CNP-B has taken me behind the woodshed and gave me a bare butt spanking though. Thankfully its a small portion of what I own, or I would have been taken to the cleaners.
    Although I started 2 weeks ago, I fast tracked tweaking the starting lineup more this week. Got in issues I am more comfortable with. Bought more SR-A at 26.15 and 26.30 today. Have now have a trifecta of industrial reits buying more PYLM-A today on sell off, more STAG-C as a safety play, and even through in a new one REXR-A at $25.02 which has IG rated bonds. And of course EP-C went under par, so whats a 100 more when I bought way more than that at 48.72 the other day.
    Will have to look more later, but I feel comfortable hunkering down with the rag tag preferred soldiers in my unit. Prices will go up and down, and maybe more down. At these times you have to feel comfortable and confident in what you own. And have the courage if things go wrong to do the correct thing…Sit on your hands and do nothing….

    1. Grid, Only you could have multiple “business as usual” flips on a day like today. That is hilarious. I too was tied to the whipping post on a few issues. My “starter” positions in XOM and RLJ-A never got off the start line and have led to bouts of self-loathing. I’ll be sitting on them for a long while it appears, though they can be averaged down multiple times if need be. On the bright side, it’s been a great time for daily incremental adds to high-quality preferreds that were untouchable only a week ago. Months’ long standing bids are finally hitting. Today added to FPF at 22.56, IPLDP at 24.99 and BK-C at 25.05, each at or near a one year low. As appealing as they might appear though, this down staircase may have a ways to go so taking the steps one at a time should keep us from a trip behind the woodshed.

    2. The REXR seems to be a good company, at least their balance sheet looks healthy.
      Thanks for the idea, Grid.

      1. Yuriy, It does to me also. And credit agency likes it. It is a So Ca Ind Reit, so largely concentrated. Now having seen what played out I would have been more patient and bought the B or C series. But they werent cracking yet and A blinked first so that is where I bought. If I had been a bit more patient I might have been able to have snagged the longer call protected issues instead. But its a waiting game because they have fairly wide bid ask spreads and the liquidity is in fits and spurts.

  15. Still early innings about Coronavirus disclosures and cases here in the United States I am afraid…

    I fear with every state announcing new cases over the next month or two, we are going to get hit as the bottom is still some time away. Consumers have carried the weight of the economy for years now, a change in their spending which has already happened is going to be terrible for top-line revenues. Topline revenues that were already weak last year.

    Earnings and multiples contractions are never fun. You get pinched on both sides.

    But hey at least this allows people to figure out what a “safe investment” truly is? I loved your earlier post about that “financial advice” website.

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