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.