In spite of the 10 year treasury yield hitting the highest level since June of 2014 stocks raced ahead under the premise that congress kicking the budget can down the road by a month–is good news when it is really just more proof of the total incompetence of this group.
In the end it really doesn’t matter what the folks in Washington DC do because the easy money policies still have way too much money rolling from market to market driving prices to levels that will very likely end badly–SOMEDAY. No one pays any attention to the 600-800 billion dollar budget deficit the U.S. is running and this is before the probable additional deficits caused by the recent tax cuts. Goldilocks continues rule the markets. Irrational behavior can go on in these markets for many years and there is little use getting worked up over deficits when we won’t have to ‘pay the piper’ for potentially many years.
Preferred stocks and baby bonds lost maybe 1-2 cents today. If we can just get income securities to hold with penny losses while interest rates climb to 3% (we believe they will hit 3% this year) we will be in 7th heaven. Alas, these types of markets end with folks getting hurt. The last time income investors got hurt badly was when they were holding upstream MLPs and MLP preferreds believing they were ‘correcting’ when in fact they were heading toward bankruptcy. So what is hiding out there now just waiting to rear its ugly head?
We won’t change what we are doing investment wise as the equity markets go bonkers, nor do we change our path because most preferred stocks are holding up well. We continue to hold shorter maturity term preferreds and baby bonds within a couple of years of maturity–same thing we have been doing for 3 years because the loss of 1/2% or even 1% in yield we incur is worth the peace of mind we derive from this plan. It is likely we will change our road map later this year mainly because we believe by the end of the year we are going to see major changes in markets as the FED proceeds with the balance sheet runoff and global central banks are likely to follow suit. We think EXCITING times are ahead–unfortunately exactly what that means is something we can’t explain–could be good or could be bad–so many, many possibilities.