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Is a New All Time High Just Around the Corner?

Not that it matters all that much to me that equities would move to all time highs, but equities can (and do) drag preferreds up and down in sympathy when markets move sharply. Right now the S&P500 is just 2% off a 52 week high and around 5% off an all time high–extraordinary performance in a time of sharply higher interest rates. What is my guess on the odds of moving to all time highs? New highs will be seen in the 1st or 2nd quarter of next year–1 simple premise–money, money, money! We have all seen the charts before – money market fund balance charts (below). Higher interest rates have moved money to MMFs – peaking interest rates will start the move back to equities and it will take only a tiny amount of movement from income securities (including MMFs) to move equities to all time highs.

What are the odds I am correct in this ‘quess’? ZERO. SO MANY factors at play here and my guess is worth exactly zero.

Equities are up this morning as we await the August employment report and just a modest 170,000 new jobs are forecast with the unemployment rate forecast to remain at 3.5%. Of course this is a ‘bad news’ is ‘good news’ story–the lower the employment number the more favorable will be the reaction (at least to a degree). Interest rates as represented by the 10 year treasury are at 4.10%. It should be an interesting day.

I had a gaggle of treasuries mature yesterday so more dry powder and more decisions to be made. Do I buy more CDs? I mentioned earlier this week that I had bought some JPMorgan 5.6% 1 year, callable CDs–I am loving the 5.6%, but am open to reinvestment risk in 6 months if called–we’ll see.

19 thoughts on “Is a New All Time High Just Around the Corner?”

  1. Do I buy more CDs?

    I keep a 5 year IG ladder and use CDs when it makes sense.

    Other than that These are some of income oriented positions that I have open that I would add to:

    1)Common equity in MPLs particularly ET or EPD. Taxable accounts only.
    These 2 combined amount to a standard single position size. MLPs are one of the best values out there IMO.
    2)Oil and Gas E&P Common Equity with focus on yield
    XOM, OXY, HES, DVN, FANG, SLB, CHK, PR. These names combined amount to a double sized position (and has been a drag most of the year but worked well last year) This is actually a very high yield basket of stocks. Heavy focus on the Permian, a particular off shore play in Guyana and LNG.
    3)Fannie or Ginnie 6% MBS bonds when they trade below par. 6% Agency MBS is an excellent value given 6%-4.18% = 1.82% spread over the 10 year.
    I have a standard sized position in the 5.5% Fannie bond and am looking to add. Also have AGNC NLY+F, NLY+G, RWT+A and SACC in the MBS space.
    MBS related instruments amount to 25% of my FI portfolio at this point.
    4)Eagle Point Credit Term Preferred
    This is by far my favorite way to take credit risk in this market and it’s a standard position size. These are the equity tranches of CLOs. Term preferred is an excellent instrument for this type of asset IMO.

    I am looking to replace MS-E (1/2 position) as soon as I can find a good alternative after the Fed meeting will (hopefully) do the trick.

    On the racier side – These are long term equity and other positions that I own but am not adding to the following:

    NSIT – midcap computer network services. Long the common standard size position
    CDNS – largecap pick and shovel play on AI. This is engineering software that is used to design electronic components and boards. 1/2 position
    ALU (Trades on Sydney Exchange) – midcap a pick and shovel play on AI. Engineering software that is used to design printed circuit boards. 1/2 position
    CRM – largecap enterprise software 1/2 position. This is a margin turnaround story.
    PLTR – largecap AI software play. IMO this is best in class AI software. I am short put spreads and also long the common. With these 2 items combined it’s a full position.
    Long Nikkei and short Yen (as a hedge). For this I am using futures. That is just because it worked out best with my particular situation. It is a double weight long term position. I think that Japan is the best value play out there in terms of global equity markets. Yen is a disaster. This is not a leveraged position as I have the notional value of the long futures position in a Schwab money fund earning money market yields.
    Bitcoin – I know most on here will hate it, but it has always worked for me.
    Cash ETFs are going to happen and when they do BTC will do very well. This is a 1/2 position which I funded by selling COIN call spreads (since covered at a profit).

    FWIW and as the man says… do you own due diligence!

    I run a 60/40 and a standard position would be 5% of the associated portfolio.

  2. When you’re getting 5.4 on mmaccts the overnight $ earned…..is more than we were getting in a year! For dollars in now…..fixed to floats that have converted to sofr and adjusted are over 9…..are over par. Pushing it anyway. The ones set to float next year are around 24. You can get a 6 coupon at a discount with a chance at 9+. And if rates roll over and we get called the put back at face won’t hurt. Just like WFC Q last year was 23, you can find some at 24 callable 2024. You just have to be OK with the credit. Regions looks good.

    1. No one ever really knows, but here’s my take:
      Immediate reaction to higher unemployment (both u3 and 6) rate was that yields fell as it was interpreted as softness in labor market. However, if you dig in, you find that employment was actually strong (up 222k) and the increase in unemployment rate was actually from increase labor force participation rate (people coming back into the work force en masse).

      1. I think people who dropped out of the workforce during covid and lived on “enhanced unemployment”, expanded (free) medicaid w/o having to qualify, housing eviction moratoria, etc. are having to re-join the workforce. I am sure that is not all the growth, but it is certainly some.

        Funny experience this morning. I had to go pick up some containers at the dollar store for a pre-school project, so I was standing next to a woman who was complaining to a co-worker about how she can’t get an apartment. “First they said I didn’t have a job, and they said I had bad credit.”

        She said she didn’t pay rent for a few years (under eviction moratorium and subsequent eviction proceedings), but how are landlords allowed to refuse to rent to her? She said she just got this job (at the dollar store), but she was told by her social worker that she didn’t have to pay rent during the moratorium – so how are landlords now allowed to hold that against her?

        Don’t even know where to start with that.

  3. Can anyone explain why C-pN trades at such a large premium despite a 2015 call? Presumably the market doesn’t expect it to be called, but why not? Does it have anything to do with it being a trust preferred? Thanks!

    1. I believe this security was issued not long after the financial crisis, and under the rules at the time still qualifies as Tier 1 capital, making Citigroup hesistant to call it despite the high yield.

  4. I’ve been pretty much wrong for the last 3-4 months and sold off credit in favor of cash. I’m holding more cash today (25%) then at any time I can remember. I exited my 15% position in BDCs expecting that we’d see trouble in equity markets and that I could buy back later once prices corrected. Wrong. I continue to watch credit spreads and curse myself for not using them as my guide.

    With that said, in my conservative account (my parents), I’ve been heavy cash and the last two weeks have been extending duration. Buying 4-5yr CDs and term preferreds and fixed maturity BDC baby bonds.

    1. I like an honest man like you willing to admit they are wrong in certain areas.

    2. Marinprophet I have only been selling the last couple weeks as x-dividend dates have come and gone. Moved most of the money to MM funds paying 4% and more and up to 25% cash also.
      I have bought some stocks to do quick flips and not replaced them and bought small amounts of some illiquids.
      Like Tim says, my thoughts about what might happen could be 100% zero correct.
      I have 6 issues of preferred and one bond of some banks and not certain I should be holding them in the event of a pull back, but this spreads the risks and I need the income. Most I reduced my positions in as I read the FRB is wanting banks to recapitalize by issuing debt and we all know what can happen in that loop. Borrow at a higher cost, limits to what they can invest in to make a profit, higher risk to get a return, people and businesses unwilling to borrow at higher costs, greater risk of suspending dividends that are not cumulative.
      The risks on the newly issued higher dividend preferred of the BDC’s is that they are new. We have no history of how they would perform in a up or down market.
      If this sounds like l am pessimistic then consider this. I have the cash to place some GTC low ball bids before the next dividend cycle so I will be one of those ” am I catching a falling knife or buying when others are selling” kind of people.

    3. MrIn, If this was 3 years or so ago, you could say you were wrong. But fortunately we are in a new environment, so the worst you can say is you are “less right”, ha. Because today you are finally getting paid to be “wrong” be it the current yields of cash and short duration safe issuances that are being paid now. I have at least a third of my stash now in those type of instruments. And personally I am enjoying being wrong now with some of my money.

      1. Grid, Last month my division didn’t hit our sales goals. Just slow and some customers delayed shipment. As of today, we blew it out of the water and will be 20% over the sales goal for the month of August. On the other hand yesterday one of my customers who is what I would call a job shop said he is so slow he’s cut back to 4 days a week. Materials costs have slowly dropped but are offset by shipping costs. Several of my sales I hold the bid for 30 days and in that time freight rates have gone up due to labor and mainly fuel costs and I took small losses on shipping the orders. Trying to hold margins but several customers told me my quotes have been too high so I have been slowly lowering margin trying to find the sweet spot.
        I keep notes and when customers ask for a re-quote I bid at new pricing, When they just send in the order and ask if the pricing is still good I know they already have the job and I say yes.

    4. I’ve been holding BDCs as well with an outsized position in ARCC and smaller in TSLX. I did hedge them minimally by selling the Dec/Jan covered calls. These guys should do okay either way given the way their debt is structured. I am in a lot of ultra conservative bonds (Treasuries) with avg yields 5-5.5% and maturing incrementally at one month or so intervals. Gives me an opportunity to decide where next to deploy that maturing capital on a regular basis.

      1. I liked a recent article over on SA done by BDC Buzz. He had a good list but not all I think have preferred but I could be wrong. Article on PSEC
        Laid out all the reasons it’s not best of breed.

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