Let’s Do This in an Orderly Fashion

Wow–again. Rates are tumbling again and are trading in around 1.65% (on the 10 year). Stock futures are down more than 1%.

I think we can officially term this ‘a race to the bottom’ on a global basis–everybody cutting rates–this may not end well.

For the newer investors you can be certain if we get some big downdrafts in commons stocks and interest rates that preferred stocks and baby bonds will follow. Logically they go up with lower interest rates, but when common stocks fall hard it will drag income issues with it.

On Monday we saw income issues fall, but nothing dramatic. Today again we may see them fall, but I don’t think it will be anything too bad–10 or 15 cents on the average share.

The key on common stocks and also income issues is to have sell offs of an orderly fashion thus creating some bargains over the course of days or weeks.

The key unknown–who out there is being crushed with the move in interest rates? Where is the unknown massive bankruptcy that sends the globe into a tailspin? The big derivative players–Wells Fargo, Bank of New York, Morgan Stanley, HSBC, Bank of America, Citibank and JPMorgan better have their act together. Remember that there are $100’s of trillions of derivatives out there and these require multiple parties–counterparties and if 1 of them bet big on rising interest rates we could see some dominos tumble.

As always we watch—I will be doing no selling, probably no buying right now.

46 thoughts on “Let’s Do This in an Orderly Fashion”

  1. Unless there is a total earnings washout coming up, these rates should eventually help everything, including the earnings I just mentioned. Good IG Bonds will have a time to sell higher and will go up, IG Covered Prefs should hold or rise as payouts become more desirable, if you have cash do some bargain hunting when it gets juicy and watch that list you prepped up.
    The media has done their job and poisoned the waters again and gotten everyone’s ego in a frenzy. I always hated working on days like this. We are beginning to go Pavlovian in the US.
    I have more equities than I have had in years as I nosed into some EM (Roth) seeing a long term reversion to CAPE averages, maybe not the best timing but down 0.25% overall nine accounts!?
    Lastly, Am I paranoid or does the Internet always get “braked” and go down, no access, stalled on market down days? Getting predictable. TD has been horrible today so I do some accounting instead. Make yourself some tea and take a walk, see ya around the corner! JA

    1. Joel A. Tea is how i got kidney stones. Once i stopped Teas (herbals are fine) my stones stopped. I am no longer a stoner.
      I did some bargain hunting in Teva 600 shs at 6.53 and will keep it for a while.
      I did Buy /write on PBCT 600 shs I want to capture a div or two above 15.
      Otherwise i nibbled on ARRPRB at 25.01.
      I use Fido and Fido been good to me.
      Do all you Fido users have a VIP access app for security?
      Also, i called Fido a few days ago on my iphone speaker.
      Fido asked me to take it off speaker because their voice recognition couldn’t verify my voice on speaker.
      Good hunting everyone

      1. Hi Newman – Since you use Fidelity, here’s a tip that can save you some
        money … I was on the phone with them yesterday, asking a question about their “Money Transfer Lockdown” security. As the conversation was ending the rep told me he appreciated my business. I replied that if he really appreciates my business, give me some free trades to prove it. He did … in both of my accounts. This is the third time they have given me free trades this year.
        Ask and you might receive, knock and the door might open ….

        1. Words of wisdom, Bigbear….. It works at TDA too… BTW at TDA I brought some cash in to get some free trades and negotiated a much better deal on phone to the main desk when my assigned regional rep was trying to tell me “well, we’re no longer offering free trades as incentive, but we can offer a small cash addition.” So never assume NO means NO, at least when it comes to what you’re told about free trades.

          1. One other thought on this subject… The money I brought in to TDA was transferred OUT from Fidelity because I got sick of their nanny state constant refusal to allow me to buy anything fixed/floating or called securities or even many baby bonds without requiring me to call in first and then call in again if I wanted to change the terms of my bid…. TDA is so much better about so many of the issues talked about here…

            1. 2WR, Oddly enough, that’s my biggest gripe with Fido.
              The Fixed/Floating issues all need a phone call.
              I will complain about that the next time i want to trade F2F issues and take Bigbears advice and claw some free trades while on the phone.
              QOL now shows how long its been since you contributed to the site.
              Its been 8 months..time to do my part.

            2. This is interesting. I am in the process of closing the small part of my portfolio which is still at Merrill and moving it elsewhere — probably TDAmeritrade. There are a lot of reasons for that. They stopped allowing me to hold securities they had originally sold me. They don’t allow purchase on the grey market anymore. They have some “low priced security” BS that disallows trading a lot of securities I trade in other accounts. And they have gotten too political. I like their platform but what is the point of a broker who won’t trade the issues you want to trade?

              All that aside, what sort of deals do you guys think I can get at TDAmeritrade? Their website says their free trades are only good for two months and the cash they offer for a transfer looks a little weak. I could probably do better moving it to Fido where I have other accounts, but as has been mentioned, Fido has its own problems. Oh, and the local rep not being as forthcoming applies to Fido as well. Last time I opened an account there the local guy was telling me a few things I knew were wrong, and the web rep was much more generous with incentives. I won’t even call the local office anymore.

              1. Scott – Regarding TDA, their normal time for use of free trades granted is relatively short, but with my recent transfer I managed to negotiate a 2 year period, equivalent to what I was originally given by Fidelity about a year and a half ago. However, even if you are unable to replicate what I negotiated, I’ve also found that if you keep track of expiration dates on your free trades, all you have to do when you see you have free trades expiring is to ask and they will happily extend the expiration date for another 3 months… In fact, you might even be able to get them to throw in additional free trades as well

        2. BigBear – I have not spoken with anyone at Fidelity, but have noticed over the past three months that no commission is being charged on many of my trades – both buys and sells. At first, I thought it might be an error and a correction would appear in a day or two. Nope. In the last 90 days, I have made 74 trades (approx 25 of those were opening or closing option trades, all of which had comm). Of the remaining 49, I was not charged a commission on 20 trades. (some examples w/ no comm: AGO-E / sold WFC-L / sold TNP-C / bought NRZ-A / sold [also bought but comm charged] BXMT / sold PPX / bought ….. I can find no pattern. I won’t be calling them to find out what’s up. Perhaps others have exp this as well.

          Newman – Regarding the VIP access, I have been begging them for a number of years to enhance their security. I have had VIP since it came out and am pleased with it. It is much superior to standard 2FA, imho.

          1. Martin,
            I’ve experience the same thing at fido. Sometimes i don’t get charged
            and sometimes i do. There’s no pattern to it so i can’t explain it. And like
            you i’m not gonna call to ask. I moved a roth over to them recently and they gave me access to active trader. I don’t know if that’s it or not. can’t call them
            cause that full time thingy get’s in the way. hope they keep giving us both free trades often 🙂

      2. Re:TEVA I bot when it crated to 9, was still paying a div, then “wrote and rolled” all over the place since it could not hold an up trend. Nice and volatile with vol. Roll when in the money, let expire when out., re-write. Must have had 15 trades. I made more than the stock was worth luckily in an IRA. Eventually let it get taken as I was exiting equities. I think writing is a good strategy and can add incremental income esp in a sheltered account. I think it also a good way to SELL equities, get assigned. It is going to get interesting to try to trade and not just set up an annuity pool at my age. That’s basically what I have done. Trading is HARD to continue/repeating success. Good Skills!
        I think this Market is eventually eat a bunch of folks up, bite by bite.

    2. It will be interesting to see how Wall Street and corporate execs behave if rates go below 1%. The CNBC guest host had an interesting statement this morning

      Elizabeth Warren + CEO pay limited to 10 times average pay + no buybacks equals 0% GDP.

      Not that I agree with that but low interest rates suggest no credit expansion and no demand for money. Our financial system does not work well on that basis.

      I guess we could really see “who built that”.

  2. Good morning, Tim, Gridbird & others on this site,
    First off, thank you for hosting this really helpful site and sharing your knowledge and expertise. Is there a “sign in” process to be part of the group or just comments only? Secondly, what do you think of insurance company preferreds vs the banks? Thirdly, do you have a sample portfolio of dividend paying large cap highly rated companies? Sorry for so many questions , but you guys are so smart!
    Gratefully yours,
    Debbie

    1. D
      Just post where you wish to, in any section that allows comments. No sign in or subscription is necessary.
      This is a freedom of speech site. Your other questions will hopefully be answered by those with more knowledge than I have. ( I would rather be lucky than smart ! )
      Thanks

    2. Hi Debbie. As far as banks and insurance companies go they both have their safer ones and riskier ones. It depends on segment and financial strength. Unless you buy the debt, the preferreds of each are largely non cumulative for both sectors. Some insurers are viewed a bit more suspiciously than banks and yield wise it may reflect that. Others that is not true. They both had many take or need TARP money back in last crisis.
      I am no help with common stocks. Only one a couple in fact I bought PPL yesterday and its up over a buck now. I should sell, lol.

      1. ha, ha, may be better to make a buck than trust in the dgi story . . . who knows? i’ve been holding PPL in a couple of accounts for a couple of years now, no great shakes but think they may pay off over the next 5 or 10 years. also, Grid, thank you so much for sharing your insights on the fixed income.

        1. D, I kind of thought PPX would retreat to 25.30s area quicker after going exD but it didnt. I only bought 500 this rodeo as money is too tight. Kaptain Lou teases with CDR-C and forces me to buy a little, another forum guy strong armed me into some BFS-C, I jump on PPL yesterday, and a bit more LXP-C, and next thing you know, the flipping money is gone! Might have put myself into forced timeout for a while.

  3. It’s amazing how low the rate has fallen on the 10 year Treasury. A year ago I would not have thought this was possible, as the economy is moving along at a decent pace. These low rates are probably going to allow a number of companies to redeem some of my better preferreds and replace them with lower rates. As I depend on interest/dividends for my retirement income this situation may force me into purchasing some common stocks – just to get some yield. That is certainly not my first choice at all, but non-cumulative perpetual preferreds in the 5% range don’t look like a good long term investment for me.

    1. Lou, you were hilarious on beating down ol Bradley boy on his daily reco on SKT. You notice he never answers you as he has no answer…Other than a 50% beat down since initial reco. He just replies with some pithy comment unrelated to your concern.

      1. Grid – did not know you noticed my remarks! One of the real issues with SKT is their largest tenant (7% of gross rent) is Ascena Retail Group and they are trading at .32 cents per share today. He simply won’t acknowledge this and provides me with quotes from Warren Buffet. He might as well just provide me with quotes from Jimmy Buffet if he’s going to ignore this huge risk factor. It’s much harder to fill empty spaces in outlet malls than it is in strip shopping centers like my CDR owns.

        1. kap, C’mon now, is a potential major tenant rollover really a big deal when Tanger has increased dividends for years and years? Yes I’m kidding…

          But have to confess I (again) did a deep covered call trade on them to capture two divvys and the call premium.

          1. Alpha, I have no idea if today its a good buy. I just cant stand his repeated pumping to get his losses decreased. Just never makes mention of the constant beatdown he has had with it. And its been going on for years. He is right, the market is wrong. But yet it goes down and he brings no new info to the table to give an owner hope the thesis has changed to where he would be right, now.

          2. Alpha8 – actually, a covered call position to capture the dividends is probably a safe way to play the shares.

            If they do close a number of stores, those locations could be vacant for a long period of time. Heck, even one of the nicer outlet stores near me owned by SPG just lost the Nike store and I see a number of vacancies there now. A few years ago it was 99% occupied.

    2. Trump is beating the drum for lower rates, there will be pressure to follow the ECB down, and the economy is tipsy.

      Zero chance rates go up.

      I rarely go all-in on an interest rate direction but that’s pretty much what I’m doing now.

      1. They blew a bigger everything bubble. They need to to keep the pump running until it finally quits. Who knows when that happens. The cats don’t look worried they look very chill. I’m going fishing.

      2. bob, Not envisioning any scenario that would have enough impact to turn, halt or even slow the rate trend. In fact can easily imagine a few that would accelerate the race to the bottom. And we could be there a while this time. I doubt we leave the lower rungs and leave the world behind, baring some new verison of the industrial revolution.

  4. “The key unknown–who out there is being crushed with the move in interest rates?”

    The pundits keep talking about falling interest rates, particularly the 10 year, never factoring what it actually means for the big players. Thanks Tim for putting in perspective.

    1. Who is being crushed?

      Easy, savers. Low interest rates are a hidden tax on those who save. For example, anyone in retirement now either cuts back on living costs, spends principal or moves into the market for higher, more volatile returns. Doesn’t sound appetizing.

      People who are favored are borrowers, for awhile.

      1. Exactly. Over the last decade, we have seen a massive transfer of wealth
        from savers to the Wall St Speculators. What is so galling is their arrogance.

  5. I’ve been keeping an eye on the gain/loss spreadsheet but there don’t seem to be many bargains popping up.

    Seems to just be the Fixed to Floating and the usual junk going down.

    I bought some USB-O 5.15% today at 25.20 – seems like a good deal with the 10 year at 1.65%, but it could get called anytime…

    1. Jacob–I think you are correct. Be careful with that page as the google ‘yesterday’ prices are sometimes not correct–I think I will change the calculation method later tonight.

      1. Excellent – thanks Tim.

        As someone in their early 30’s I know I could easily go off the rails and get into risky gambling like options trading. Having this website keeps me disciplined.

        1. Jacob
          Just invest in what you UNDERSTAND; options are not necessarily gambling if you understand what you are doing.

    1. Tim – I believe I’m ready and prepared for this. I’ve worked hard to learn and to position my portfolio to withstand this … of course; to a reasonable point.
      Thanks to you and this community, I am much more comfortable (then last year) just watching and probably doing no selling and/or buying until I see bargains. You probably get tired of hearing this but, I have to tell you, again, how appreciative I am of this community.

      1. Good to hear Bigbear. I feel well positioned but until we have a true panic I never know for 100% sure.

    1. Tatalaa–that is partially why we are here—we have traveled this road quite a few times and while each time is different the one thing I have learned is just to turn off CNBC and watch my computer just a little bit, but don’t react without days of thought.

  6. Zero rates will cause a huge re-fi of corp debt which could be good but probably will result in larger and larger debt loads being added to balance sheets.

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