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Not Compelled to ‘Buy’

When I have cash in my accounts I almost always feel compelled to buy something–preferred stock or baby bonds, but now for the first time in years I have jettisoned that ‘need’. When my money market is paying me over 5% and CDs are 5.3% for 3 month, non callable issues why should I feel I just have to buy something paying me 6-8% and adding substantial risk to the portfolio. Part of this is driven by my belief that interest rates, on the long end, are not going to fall much–supply of new treasury debt will at some point in time overwhelm demand–then we will have real interest rate problems.

Some will recall that I mused a few months ago on movements in the long end of interest rates–the 10 year would drift lower into the fall and at that time rates would move higher–now I am worried that markets may have the ‘ah ha’ moment sooner than the fall. An obvious item which can change the scenario is that the Fed discontinue QT (quantitative tightening) which would mean the Fed would not runoff the balance sheet–the balance sheet would remain at $7.5 trillion or even move higher if they were forced into quantitative easing (QE). The other item which could move the needle is that the congress act to reduce spending–but we all know that is highly unlikely (not inviting political discussions here). The bottom line is that I am putting a premium on safety–if we get a ‘ah ha’ moment investors could get whacked.

So with plenty of cash in our accounts I have added CDs again–but leaving some cash in case I find something to buy – a term preferred or maybe a short dated baby bond–but at this point in time I won’t blast all the cash into preferreds or baby bonds–nor am I selling anything. All this is subject to change of course. We’ll see.

34 thoughts on “Not Compelled to ‘Buy’”

  1. As much as I love this website, there is the problem that almost everyone on it has the same opinion—that the deficit (with its demand for enormous Treasury funding) will overwhelm the economy and cause interest rates to skyrocket. I think it might eventually happen also. However, the question is when? Are we talking about a year, two years, five years, ten years?

    I find it difficult to be predominantly (75+ percent) invested in very short term maturities or MMF funds. I’m more like 30%. It’s easy to say that I’ll jump into longer term maturities when short term rates come way down, but that’s easier said than done—at least from my personal experience.

    Consequently, I’ve been adding F2F/reset issues such as the State Street 6.7%, NRUC 7.125%, Fed Ag. Mort. 6% and Citicorp 7.625% issues. It’s just my guess/hedge to attempt to stay on top of things. Certainly don’t know if the strategy is good, bad or indifferent.

    1. Not everyone here has the same opinion. You are only noticing the vocal contingent of whingers that always have to find fault with something. After a while you learn to ignore the noise.

      1. I’m of the opinion that I don’t know the future direction of rates so I try to manage the risk and trade opportunistically. If the past few years should have taught us anything, it’s that even the most well known economists in the world don’t know anything. So why would I be confident in my ability to predict the future? All I can do is manage risk.

        I own issues that currently float off the 3 month, issues that reset every 5 years as well as issues with fixed rates. I try to stay with very high quality issuers since credit spreads are so compressed right now that I don’t see much benefit in buying junkier issuers. I even try to manage my 5 year resets so that I spread out the maturities so I have some resetting in 2024, 2025, 2027, 2029, 2030, and 2032.

        On the fixed rate issues I own, I’ve tried to mostly lean towards issues that are well below par in case rates fall so the income I will lose in the floaters will be offset by capital appreciation in the fixed rate issues.

        I see many issues I don’t understand that like DTW where it trades at $24.90 and only has a coupon on 5.25%…if rates fall a lot, the company will call it at $25 and the upside is very limited. If rates go higher, DTW will fall a lot from here (the 52 week low is $20.43 which is about 18% below the current price). Seems like all risk and hardly any potential upside.

        1. I bow to the light within you and I am so glad you, Grid, and others here actively sift through the detritus looking for gems. You have all helped my KISS portfolio tremendously.

          I care not if the market goes up or down, as long as my holdings continue to pay me. In fact, if mine go down, I will buy more with income that’s beyond what I need or want to live on.

          I just want to make sure the income keeps coming. That’s one of the reasons my recent buys have been mostly in the old illiquid ute preferreds @ 6+% QDI yields and well below their call prices. Their dividends are ~100+ times covered by their ute’s earnings. And they get paid before the common or the parent holding companies. Sweet. (Thanks for that, Grid.)

          Income streams that never quit. That’s the catbird seat and all I will ever need.

          Thanks again for everything. Y’all keep on doing good and enjoying life’s wonders.


          1. Thank you but I’m no Gridbird. That man is in a league of his own…I learned from him and others here so I try to contribute here as I can to help out the next person trying to learn. I’m very grateful for all of the help and wisdom shared over the years.

            On that note, for anyone looking for medium duration safe issues, TVC and TVE both have YTMs of around 5.1% at the moment. TVC matures on 6/1/28 and TVE matures on 5/1/29. Rated Aaa/AA+.

            1. Dick; your on my mount Rushmore here at iii, my wife and I hold 2650 shares of Tve & Tvc but its still on my radar til one year to maturity who know’s what could happen? our largest holding Mike

            2. Dick–you re on the mark with these 2 – you won’t get rich, but you will be safe.

            3. Dick, I suspect you and Martin are blowing my doors off this year. Im fighting with one hand behind my back this year. Last I looked I was a smidge below 3% this year so far, that is not “King” status anymore. I have been dethroned! The weight of half my money in CDs, Treasuries, IBonds is taking its toll! And then throw in issues that dont even mark to market anymore in my account like the old AIC and SJIJ issues I own…And then throw in some bonds of various maturities I just sit on, I dont have a lot of perps anymore to wheel and deal. Maybe 25% at most.

            4. TVC at 22.16 = 5.22% YTM and TVE @ 21.72 = 5.25% if I figured right. If you tried to buy a TVA bond in the same ’28-29 maturity range on the bond desk (i.e. $1k denoms) you’d have to pay in the 4.35-40% YTM range. A spread between the two always seems to exist, but for no real reason other than the smallish size/volume available in the baby bond market… This is still my “Safety Joe” way of not paying down my 2.25% mortgage without taking any credit risk.

              1. Not only is it uncommon, but in the case of TVC and TVE it’s no longer relevant… and that’s because of two factors…. First the 30 year Treasury would have to be below 1.376% for TVE to reset and 1.194% for TVC to reset….. IMHO that’s pretty impossible BUT even if it were to happen, then these 2, with their short and shortening maturities would reset at rates +84 above the then current rate for the 30 YEAR treasury bond for TVC and +94 for TVE…. That means to me that barring an inverted yield curve that would have to be probably even greater than it is now, these two issues would almost certainly reset at prices that would still leave them trading well above par…. So as they say in the Bronx, “fuhgetaboutit.”

          2. Camroc, I am like you and Dick on the fixed perps. I am not going to buy issues near par at, below, or around the same yield I can get from the higher quality old utes sitting way below par. Basically for same reasons. Though I do have one as of today now, I violated my rule on. That POS busted convertible HL-B dipped below $52 ($50 par) this week so I bought a couple hundred. That thing can have some odd bounces over time and has done me well over the years. Been a while since I owned it, so I got weepy sentimental and bought a few. Also bought several hundred former nasty but now decent quality HWM- at $58.60. Just bought and sold them earlier this week for over a $1.50 a share gain. So it can be one of those frisky ones when liquidity dries up. Who knows this time though, thus why I dont load up on them, ha.

        2. Dick, I am going to steal a line of yours to comment “All I can do is manage risk”. That is the key point and risk will be defined my ones goals and desired outcomes. I also dont think some are knowing or interpreting correctly ones total viewpoint based on each individual situations. For example some could be talking conservative income investing while having 50% of their portfolio in common stocks. They just arent going to bring it up as it wasnt relevant to the comment or thread.
          For me, I have for over 12 years or so basically thrown everything at the preferred market and had a great run. I reached a level I didnt think was possible. I reached a level now, where I can push my lady over the finish line for a surprised early retirement after she vests in her pension in a couple years. I have more than enough on my pension alone, but she doesnt. Making say $500k more wouldnt change our MC lifestyle, but losing that amount would F that early retirement plan up bigly. 5% CDs more than plugs the hole now, so I have dialed things back a lot.
          Like you, Dick, I am not doing what I am doing because of some crystal ball interest rate predictions, govt debt fears or macro call experts cant get right let alone me. They are just of secondary concerns. The only two things I am specifically cognizant of is credit spreads are gawd awful tight now, and historically market volatility will provide better entry points. But ya gotta take them when presented and not wait for the last penny…The latter is more of a fellow poster “Alpha” thought process. And they do.. 2013 Taper, 2016, Dec 2018 credit spread rout, March 2020 covid, Oct last year 5% 10 year panic, etc.
          Peoples investing risk tolerance dictates strategy. My dad was heavy in preferreds and said “I dont care if they drop to a $1 as long as I am getting my 6% dividend”. When he passed my step mother was the opposite. She was a “I dont care if I make a penny as long as my money is secure”. So I moved everything over 4% CDs at the time, and she rode them down to 1% without concern, and thinks its raining from heaven with the 5% she is now getting. So they were exact opposites. The ironic thing is they and now her dont spend a penny of it anyways, so it largely doesnt matter. Except to us heirs I guess, ha, But that is irrelevant as all we care about is her emotional financial well being and she is happy as a clam, so that is all that matters.

    2. > everyone on it has the same opinion

      I don’t know about that. Personally I’m about 90% born again Boglehead, 5% Gridbird wannabe preferred trader, and 5% Tim-like cash hoarder.

      I had to laugh recently when one of the tinfoil brigade called the national debt a “black swan”, when in fact he was beating a “dead horse”. It’s really the last thing I worry about.

      Anyway, I’m here to learn how to better manage that preferred slice, not to be convinced to sell out of SPY and QQQ to buy 5% CDs.

  2. I simply don’t understand the “interest rate problem”. Japan didn’t have one for 30 years, so why would we?

    Japan has issued tons and tons of debt.

    1. Japan has basically had near ZIRP for 30 years, so interest on their debt wasn’t a big deal. In the US, we continue to rack up debt with now risen rates, causing further pressure on an already ballooned budget. Further, much of the current debt is short-term, so will have to be rolled over at higher rates. What happens when investors demand even higher rates?

      1. Here are some thoughts I’ve shared before (apologies for repeating, but I like this macro stuff!):

        The US debt might not be a major issue as long as our economy and productivity keep growing. This seems likely because the US remains a global leader in innovation, and we continue to have (for better or worse) significant immigration.

        On a side note, I recently used Google Gemini to improve a technical letter I wrote for a client. It made a huge difference – I’m a believer now. I might have passed English lit in college with this stuff.

        AI’s relationship with the internet reminds me of the lightbulb or refrigerator with the electrical grid. In just 5-10 years, our everyday work in offices, law firms, and hospitals might look completely different.

        So, the US has the cleanest socks in the dirty laundry, but it still stinks.

  3. With the safest securities CD / MM yielding 5%, finding something yielding 6% to me does not indicate too much additional risk.
    However, by the end of the week I should be loaded with all the 6-ish% securities that I can sleep at night owning. Can’t buy more without decreasing diversity or credit. I may look at the term limited issues.
    It sounds odd that I don’t feel the need to buy more securities either. I recall that only a few short years ago I was all giddy that I got some IPDLP at under par !
    We’ve had a good run over the last two years I suppose.
    Just pile in the MM or SGOV and wait for the golf courses to open.

    After all, a wise man once said:
    “supply of new treasury debt will at some point in time overwhelm demand–then we will have real interest rate problems.”
    ~ Tim

    Be well
    Stay Safe

  4. Trimmed the at risk portion of my portfolio down to 37% on my way to 33% in the next week or so. CD’s paying between 5.15-5.50% is currently at 30% and SWVXX at 14% with what I consider the safest baby bonds with maturities between 2026 and 2028 making up the balance.

  5. Safe funds such as VMFXX and SWVXX are around 5.2% and certainly more liquid than CDs I’d rather park money there. Fidelity’s sweeps account has been hovering around 5% so I have less haste to do something with it, Though most of my money is in those “risky” higher yield issues I can handle a few defaults and still come out ok with the other yields and trading profits. If we have a tidal wave of bankruptcies then the whole economy is in peril.

    1. I think I might buy a slug of the State Street 1000$ denom 2029 reset 6.75. Anyone able to report a price they got at Fido through the bond desk? I haven’t had to call in to get anything before but started exploring the option…I see some past trades but one rep told me 50k minimum….tia

      1. What is the Cusip for this $1000 STT issue?

        I have some of Cusip 857477CH4 a Fix 6.7% coupon till 2029 when it floats – bought in end Jan24 when issued below par. Currently trading about 1% above and maybe similar to what you refer to?

        I may add after next coupon payment 6/15

        1. that’s the one I’m interested in. last few trades show 1020$ give or take per unit. I am unsure if it trades with or without accrued…but obtaining slightly below par seems appealing. tia

          1. I see it trading at $101.519 bid, 101.978 at IBKR. Seems reasonable as should have accrued dividends since end-Jan when issued

            1. Note: That quote should be the clean price not the DIRTY price (ie. including accrued interest).

              1. Thanks for the Intel. I appreciate the various posts and have learned a lot from this group. If there is no ask at fido, and I have to call the bond desk, can any of you tell me how to discuss the price with them? 101.9 seems ok. (do they take my fee (25$?) or do they make money on the spread? or both. just when I thought I had figured out munis with no bids now there is no ask. thanks again fellas.

                1. jbosch, since no one has opined, I will offer my limited experiences with the bond desk call in. Its always been take it or leave it pricing. So I have had to in past be mentally ready to know what I was willing to pay before they gave me the “indicated ask” price.

                  1. thanks again. fido shows some trades and dealer activity priced at 104 yesterday…bond yields were down overall though. I like State Street partly because they have an HQ here and partly because they funded my program through their philanthropic arm when I first started in my career; and of course the issue seems safe. I may be best served using something in smaller increments and if I’m gonna pay a fee I guess I could use the ENB reset preferred since it is similar (I already have a ENB common position but have considered changing since the payout ratio is a tad worse than EPD). regards gents.

                  2. Fido acts “as agent.” They charge $1 per bond with a minimum and maximum amount they charge. They do not act as “principal” meaning they do not mark up the best offering they find…… People like TDAmeritrade act as principal not agent…. So they are free to mark up an offering by an amount that you may never know…… frequently, it’s possible to view that amount of markup in advance if you want to test. If you see an offering on Fido of an unusual amount of bonds, like 13 instead of 10 for example, then see if you can see how that same odd lot offering is shown at TDA or others who act as principal, then you can compare…. Most frequently, the agent, including fee, is cheaper.

                    1. 2whiteroses, I ran a bond search on Fido this morning and set it about 6.2 to the max of about 9.2
                      I ran it all the way out to 2044? Showed only about 34 offers in stock. Most were Prospect and Panama canel bonds.
                      Either yield is really tight right now or Fido’s inventory is low or both

      2. I have dealt with the bond desks at Schwab and Fidelity on numerous occasions. I would strongly recommend Schwab over Fidelity for purchasing institutional issues. Someone recently posted that Fidelity will only help them if they purchase at least $50k at a time. Schwab will let you purchase in any quantity you want.

        Also, the level of incompetence and arrogance I’ve experienced with the Fidelity bond folks is unmatched. Today I had to ask for a supervisor after the person I initially spoke with couldn’t figure out how to do what I was asking her to do. It was a very simple ask. I was asking her to put through a buy order on TVC because their idiotic website doesn’t allow trading of that issue. This weirdo went on and on about how good she was at her job (which is something that I’ve rarely heard from people who are actually good at their jobs). She didn’t help me whatsoever. Her supervisor, who was also a rude piece of work, got it done for me and mentioned she was new and that they have a bunch of new people they have to train.

        With Schwab, you just call the fixed income group (877-906-4670) and tell them you need help purchasing a bond that they don’t currently have in their inventory. They’ll ask you how many you want to buy and then they’ll provide you with a group number. After 30 minutes or so, you can call back and they’ll have pricing ready and then you can buy if you like the price. It can be very fast once you get the hang of it.

        I also believe that IBKR lets you trade institutional issues yourself but I haven’t used it yet. It’s on my to do list to open an account with them and test it out.

        1. Yes, I have had pretty decent experience with Schwab bond desk and not so good at Fidelity. I have also had trouble with Fidelity not treating some dividends on preferreds I own as QDI when they obviously are so – even after providing them copies of Prospectus, Company webSite available PDFs and even another broker statement showing it as QDI! So, I am taking my business elsewhere and away from Fidelty.

          I do have a few Corp bonds and preferreds at IBKR. Good experience buying them online (no phone call needed) – even the bonds like the STT one being discussed with Cusip# and no trading symbol that I had call Schwab bond desk to buy – at IBKR I simply placed limit buy orders and got them executed at price I was willing to pay. Downside is $1 commission per $1k which is typically free to buy at Schwab.

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