The goosy market of yesterday turned into a rallying market today. Why? Of course there is no answer why specifically the S&P500 was up over 2.7% today–peak inflation is behind us–the Fed is going to back off on rate hikes–energy prices are coming down. All given reasons on up days–most of the reasons are purely speculative and pretty meaningless (at least to me)–with the exception of energy which we can see at the gas station every day.
While all the talking heads speculate on reasons for a 1 day move I pretty much just play the hand dealt me without getting overly excited. Of course we all have thoughts on economic issues that affect the market–but they are just guesses.
Most weeks (not all) I nibble more decent quality issues that are in the 6%-7% area–I try to stick to baby bonds and term preferreds or maybe some decent investment grade issues near 6% from insurers etc.
Today I was nibbling more of the XAI Octagon Floating Rate (XFLT) 6.50% term preferred which has been trading solidly and has a mandatory redemption on 3/31/2026–an early redemption is available to the company on 3/31/2023. The issue went ex-dividend last week and traded today at $25.17.
I may nibble some high yield preferred’s soon–maybe some Ready Capital (RC) issues or Arbor Realty (ABR) perpetuals (both are currently in the portfolio)–or maybe some of those tasty community bank issues that are out there. For instance Heartland Financial, which is a Dubuque Iowa community bank (around $20 billion in assets), has a 7% fixed rate reset issue with a reset in July 2025 with a spread of 6.675% plus the 5 year treasury at todays rates the reset coupon would be around 9.8%!!! Trading at $25.76 I would like it down 2%–maybe will put in Good til Cancelled low ball orders and just wait.
I remain with around 24% cash dry powder – when I am just nibbling it takes a week or two to deploy 1%. My target is to get down to 5-10% cash – of course it may be September or so before than happens–or maybe December–we’ll see.