Global Markets Enter Highly Dangerous Waters

While we seldom are concerned when equity markets drop as many times these drops are supportive of the income markets we invest in, we have now entered a period where equity markets can “drag down” preferreds and baby bonds–this occurs when investors bail out of markets out of unfounded fears.

Overnight global markets dropped very sharply, in particular in Asia where drops of 2-3.5% were the norm.  At this moment DJIA futures are off by 300 as we write and the 10 year treasury is trading at 2.88%.  It would not surprise us one bit if the DJIA fell 1000 points one of these days and selling begets selling as nervous nellies leave the market in mass.

Certainly the term “trade war” is now closer to being an accurate description for the tariffs now being implemented around the globe, although we think the term “trade skirmish” still is accurate until such time that all the various tariffs are implemented.

Here is where we start building a little cash–take a few profits here and there, hold off reinvesting dividends and interest and hold cash in a money market.  The good part about holding a little excess cash is we earn 1.75% on the holdings.  In the past when we held too much cash we earned zip–and that was much more painful.

We are exploring many other concerns which are popping up because of the trade skirmish—-inflation, foreign purchases of treasury bills and bonds etc. as there are substantial potential issues ahead of us–and we had plenty of issues already on the U.S. economic plate.

 

 

12 thoughts on “Global Markets Enter Highly Dangerous Waters”

  1. Label it as you want “skirmish” or “war”, it clearly is a market disruption that’s been introduced. The real risk in my opinion is the POTENTIAL for higher prices for goods leading to inflation, higher interest rates, and lower P/E ratio’s for the market. With the said, the flight to quality is evident this morning on the 10 year bond, so what do I know?

    In my opinion, investors need to begin to have at least a portion of their portfolio prepared to deal with higher inflation and bond normalization to close to historic levels. That is a real good reason to take profits and readjust. Aside from money market funds (which I do have a small amount of), my suggestion is a portion of your assets may be well served in floating rate bank loan debt which pays about 4% dividend but would on paper do well if inflation does pick up.

    1. SteveA–can’t disagree with you–mostly. I haven’t been too impressed with the floating CEFs yet–I own one small position in JRO and I think I am underwater a bit on a total return basis.

      1. I almost have been unimpressed by my floating rate bank loan fund which is why I said on paper it should do well. I use BKLN because it trades near NAV and I’m want to have something that will work well in rising rate environment. I want to be near NAV in case, the flight to safety continues on a longer term basis so I can move back into better paying investments

        BKLN YTD is 1.74% which is about 2X the money market rate return.

  2. It’s nice to finally be able to earn a little money on cash now. Vanguard now shows the 7 day SEC yield on their MM fund at 1.78%. It sure beats the .01% rate that most funds paid for several years.

    1. Hi kaptain—I have added a bit of a Gabelli mm in my etrade account at 1.76% yesterday–Fido is in the same area.

      1. I believe that’s the same Gabelli fund that I’m in, Tim. GABXX. I have all sorts of junk.

    1. Nomad – thanks for the link. It sounds like an interesting preferred. The company has very little debt. Any idea on the coupon rate?

      1. Lou, I put a call into the company and I’ll report back if/when they get back with me. Wishing you profitable investing, Nomad

        1. Thanks Nomad. I checked the SEC filing and it was not listed – just with a “*” , which is typical when the company is not 100% sure of the final rate. However, they probably have a good idea of the interest rate based on the information provided to them by the broker that will assist with the offering.

    2. Here we go…Chicken Soup Preferred IPO perimeters:

      This is an offering of 600,000 shares of our 9.75% Series A Cumulative Redeemable Perpetual Preferred Stock, which we refer to as the “Series A Preferred Stock.”

      Dividends on the Series A Preferred Stock offered hereby are cumulative from the first day of the calendar month in which they are issued and will be payable on the fifteenth day of each calendar month, when, as and if declared by our board of directors. Dividends will be payable out of amounts legally available therefor at a rate equal to 9.75% per annum per $25.00 of stated liquidation preference per share, or $2.4375 per share of Series A Preferred Stock per year.

      The Series A Preferred Stock has been assigned a rating of “BBB(-)” by Egan-Jones Ratings Co. See “Description of Series A Term Preferred Stock—Credit Rating of our Series A Preferred Stock.”

      Commencing on [ • ] 2023, we may redeem, at our option, the Series A Preferred Stock, in whole or in part, at a cash redemption price equal to $25.00 per share, plus any accumulated and unpaid dividends to, but not including, the redemption date. Prior to [ • ] 2023, upon a Change of Control, as defined in this prospectus, we may redeem, at our option, the Series A Preferred Stock, in whole or part, at a cash redemption price of $25.00 per share, plus any accumulated and unpaid dividends to, but not including the redemption date. The Series A Preferred Stock has no stated maturity, will not be subject to any sinking fund or other mandatory redemption, and will not be convertible into or exchangeable for any of our other securities.

      Holders of the Series A Preferred Stock generally will have no voting rights except for certain limited voting rights in circumstances where dividends payable on the outstanding Series A Preferred Stock are in arrears for eighteen or more consecutive or non-consecutive monthly dividend periods.

      We will be restricted in our ability to issue or create any class or series of capital stock ranking senior to the Series A Preferred Stock with respect to dividends or distributions, so long as the Series A Preferred Stock is outstanding, unless holders of at least 66.67% of the then outstanding Series A Preferred Stock consent to same. See “Description of the Series A Preferred Stock—Voting Rights.”

      Prior to this offering, there has been no public market for our Series A Preferred Stock and no shares of our Series A Preferred Stock are outstanding. We will apply to have our Series A Preferred Stock listed on the Nasdaq Global Market under the symbol “CSSEP.”

      Certain of our officers and directors or their families and affiliates may purchase shares of the Series A Preferred Stock in this offering on the same terms as the public.

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