Interest rates are pretty calm today–off a basis point, but equities are acting a little confused—will it go up or down? Really not a giant surprise all things considered–markets start off optimistic and then pessimism sets in and down we go from a strong start.
As each day passes I am more convinced that the economy is going to slow substantially this quarter. Consumers don’t know what to think of the government activity–and just like investors consumers hate uncertainty. Should workers buy that new car when there employment is unstable (at least for government workers)? Should they take that vacation? The PCE to be released on Friday may show inflation–but I believe that worries on an economic slowdown may be held more important.
So what did I do today? I bought a little more of the GAMCO Global Gold Natural Resources 5% perpetual preferred (GGN-B). I had to pay a little more than the nibble last week, but if things work out as I think they may I will be looking for a 9% total gain in the next year–dividends and capital gain. This remains a very underweight position at this time.
Tim, you might also consider AGM-D with a slightly higher yield at 6.4% with still a nice discount to par. BFS-D has a great discount and a tasty 7.3% yield for a “safe” issue. Really though in this camp, I like pipeline issue ET-I which has a nice 7.2% yield and is NOT callable. The higher yield on the latter should also protect downside a little more if inflation does rear up.
Personally, I bought some CHSC-M today. Just a starter position. Seems from the comments on this board that any respectable collection of preferred stocks should include at least one, if not more, the CHSC offerings.
Dan–I have 2 CHS issues so I am good, although I may add more in the future. I have had 1 AGM issue–still hold a little AGM-E–Love the company but for some reason the preferreds move fairy violently which I could do without.
Tim, agree the AGM issue trades at a wide bid ask, which can send annoying false alarms in the portfolio.
I’ve loaded back up this month on ADCpA that I sold 20s based on one of the posters here calling it crazily priced. Glad I listened. I’m mostly in Treasuries these days but I view ADC as solid as REITs get so the preferred meets my comfort level, and pays monthly as a bonus.
Tim, Dazed and confused is a good description. As investors I think we are all pulling in our horns a bit. Over on that other site I see several people including Arb trader talking about low coupon long term to maturity BB’s currently yielding about 6.5% These are 4.5 to 5.3% yield on par.
Let’s say they will mature in 30 to 36 years. These are lower investment grade BBB- to BBB+
Hard to feel comfortable with something that far out. I look at it as a two edged sword. The economy stumbles, then the Fed’s lower rates and so do the banks. But then will these equities fall in value because of concern about the market or will they rise in value because investors are trying to lock in the yield?
My intuition says both. I guess it comes down to catching a good price if the market first stumbles then the individual babies that got thrown out with the bath water get bought up.
So do you buy now expecting the economy to slow and take a hit on your capital? but knowing you locked in the rate? or do you wait for a price opportunity that may never come?
This in a way mirrors what you are saying about the consumer.
I waited a year before I pulled the trigger on buying a new truck in 2021 instead of 2020 because things got a little clearer and it was obvious at least to me that prices would be going up, not down. Yesterday I saw the credit union parking lot with repossessed vehicles with more vehicles than I ever seen but considering how decent the economy has been it must be people over paid and are now losing their transport. If I was in the market for a used car, I might wait a little longer to buy.
Charles–I am starting to see ‘foreclosure’ notices in the legal section of our newspapers–I think 7% mortgages are starting to squeeze marginal folks.
There is a very interesting opinion piece in the WSJ today to the effect that the FHA has a weaker portfolio of mortgages now than before the last bubble implosion. ‘7.05% of FHA mortgages issued last year went 90 days or more delinquent within 12 months while the peak in 2008 was 7.02%.’
Tim – Curiosity questions.
1) Why do you put ‘foreclosure’ in quotes?
2) Do you think the foreclosures are from the recent 7% mortgages? So people bought and within a year or so already are in foreclosure? It wouldn’t totally surprise me knowing how people love to leverage themselves to the hilt. But as I type this, it occurs to me that many may have a floating rate mortgage from several years ago when rates were very low.
Charles-
How about starting your posts with an executive summary?
why? it’s 3 short paragraphs?
Rocks, It’s more of thinking out loud and stringing things together as I write. I do go back over and revise it a bit to get the wording right.
Steve H added to my thoughts.
Every area is different.
2008 is a good observation. People buying a home and having a good job. I did sales to builders and contractors then. Taking out a loan for the mortgage, refinancing as the value went up. Using deposit from the next job to pay off the credit line from the last job and carrying the same balance until your supplier tells you to pay down the credit and will not extend it. Or they take out a equity loan on the value of the house and use it for the business, a vacation or to buy a new truck or RV. Two income family and one person gets sick or loses a job. Business slows down. You bought inventory and sold it then find out when you re-order new inventory the cost is higher so you actually lost money over 2 inventory cycles.
Interesting conversations about 2008 and about the recent increases in mortgage delinquencies. In 2006, I changed jobs because I believed my former employer would never survive a downturn given that they struggled from 1994 to 2004. In 2007, I started reading articles about increasing mortgage delinquencies, so I moved most of my funds out of stocks and into CDs. Two of the best financial decisions I ever made.
I did something similar. I had a 100% stock portfolio in mid December. Sold it all around that time. I too remember 2008. I got out of that mess before too much damage was done to my portfolio and sat in cash until I heard the late Mark Haynes at CNBC call the bottom. I gave it some thought for about a week and agreed. I went all in. It was a great call but the market today scares me more than it did back then. Probably because I’m 69 and retired. 100% corporate bonds now. Mostly A rated or greater. I sleep a whole lot better.