I’ve continually wrote of my current belief that interest rates (long rates) may go higher–simply because of the supply of Treasury debt that has to be sold for the foreseeable future. Thus far I see no real reason to change my thoughts on this topic. Yes I have heard lots of political bluster, but will any of the talk translate into to action? I guess I am at the point where I am going to have to see a sustainable drop in longer term rates to convince me that we are heading lower.
With my 7% annual goal I am going to have to continue to cut some low coupon, high quality perpetuals from my portfolio and opt for riskier issues–there may well be no other way to reach my goals. By nature I am very conservative person, but I am going to force my self to lower the overall quality, while raising the coupon, but shortening the duration (certainly compared to ‘perpetual’). Most of us know that short duration baby bonds or term preferreds will be less volatile than perpetuals and the closer they get to redemption the nearer they will will move toward $25 (up or down).
I will be selling some, or all, of the Bancroft Fund 5.37% (BCV-A) perpetual preferred which is trading at $22.82 with a current yield of 5.82%. This is rated A1 by Moodys so is a very highly rated issue–but highly susceptible to capital loss with higher interest rates.
Additionally I will sell some (or all) of the RiverNorth/DoubleLine Strategic Opportunity 4.875% perpetual preferred (OPP-B). Again A1 rate and highly suscepectible to capital losses. Currently the issue is trading at $19.08 for current yield of 6.22%.
The risk of swapping issues is that the money doesn’t get reinvested soon enough and one leaves it in money market for months–it is my plan to get the proceeds of the sales invested before the week is out and I will get the purchases posted as soon as they are made.
My portfolios are off their highs by maybe around 1/2% and I would like to nip the slow downward trend in the bud now. After executing these moves I will sit back and see what happens in the economy and interest rates.
There are all types of risks (interest rate risk, reinvestment risk, default risk) but what we as individuals really need to worry about is the permanent loss of capital. Check out IBHJ iShare iBonds mature 12/15/30. At current price of $26.00 YTM after 0.35% fee is 6.83%.
Chris-
IBHJ is a tiny fund (only $43M in assets) and many of their holdings are higher risk. This ETF has only been in existence for 18 months. That YTM seems way too low for a fund that invests in junkier high yield bonds that matures 6 years out.
I wouldn’t touch that thing unless the yield approached 9-10%. Eventually higher yields on the 10 Year Treasury are going to affect these higher risk companies.
The Bond Vigilantes are back and they aren’t taking prisoners.
https://www.usdebtclock.org/
Doc, I pulled it up and Black rock is a respected name, but they have been issuing these junk bond funds for a while. F,G,H kinda reminds me of Great financial crisis in 2008 when brokerage houses were bundling lower rates bonds and higher rates ones and saying they had a higher credit rating and a lower chance of a default. We ask the government to save us and they enact the Dodd Frank Act then banks and brokerage houses with their lobbyists ask for the laws to be relaxed and the cycle starts all over.
I wish I could read this article in full.
https://www.bloomberg.com/news/articles/2024-11-06/blackrock-readies-1-3-billion-private-credit-continuation-fund
In some ways this sounds like a ponzi scheme paying off older investors with new investors money. But It’s legal to set up a new fund and loading it with first lien assets. Doesn’t say what the quality of the assets are.
I think a lot of us are questioning what inning the economy and the interest rate cycles we are in. Definitely not the 1st inning.
“I wish I could read this article in full.”
Try this
https://tinyurl.com/ae4pau4t
Thanks xerty, I just thought it would be longer
https://archive.ph/G0M8L
article you mentioned
The Age of Fear. That is what we are in now.
Pig, Glad you showed up.
Bea just reminded me this holiday about one sector of the market you were in. It’s off the highs and looking better but I still think these common stocks have a ways to go lower. Have you been watching “wet” assets lately?
Charles, I sold all the water commons this past summer. They had run up more than I anticipated, and faster…..so decided to sell and move somewhere else. I always track them though. ARTNA and YORW are looking pretty good right now. I did recently nibble into CSX, not water obviously. but similar low yielding stability play. Added to some other commons, UPS, F, BP and waiting to add some to my REIT holdings, BNL, GTY, VICI, O, and NNN. Last few months accounts have been meh, drifted down a tad (~1%) from the summer. Overall, haven’t sold anything this fall, looking back at transaction history, littered with buys. I move more slowly these days it seems. Or maybe just not onboard so much with this bond market move. Feel like I have good quality stuff that will pay no matter what turmoil we get from the 10yr movement. BP only one that seems to be struggling at the moment. Have made 10 buys and still only have a Quarter position though, so will keep plugging away.
Pig I think your ideas on water are good. Last few years in OH & PA they have been having spells of drought. With the growth they are having in TX, AZ, NM, they are running out especially with groundwater pollution and poor water management.
GTY was one I was watching but too many other plays out there and my attention drifted and it got away. I see gas station locations always getting redeveloped over time. BTI and other sin stocks like alcohol are interesting.
pig pile–it is unfortunately my nature to be fearful and in particular right now when I can’t ‘see’ a logical path for interest rates to move lower.
I agree but try really hard not to be fearful selling or stubborn holding. A tough balance. Now please keep the arrows in your quivers.
A few months ago someone here mentioned the YieldMax ETF’s. I was curious and researched all 35 of them available at the time (there are more now). I have owned option income funds from time to time but none with these kind of yields. So, I decided to give them a try with 10% of my portfolio and have so far bought 16 of them or 0.625% into each one. They are call (and put) option income funds that DO NOT hold the underlying equity but create it synthetically. I looked at the distribution history of each one and the price chart of the ETF and the “underlying” equity. I found that most of them dropped pretty rapidly and steeply from the issue prices and bought most of them near their lows.
I own ABNY, AIYY, AMDY, AMZY, CONY, DIPS, FBY, FIAT, GDXY, MRNY, MFSO, MSTY, NVDY, SMCY, SQY, AND YBIT. The distributions are very high initially but seem to settle down somewhat after several months. I created an Excel spreadsheet and use the average of the most recent 3 months of distributions to estimate my yield (I may bump that to 4 months).
So far, so good. They are up an average of 1.5% with the biggest loser, MRNY down 30.7% and the winner, SMCY up 4.2%. However, MRNY yields 54.3% at my price of $7.36 and SMCY yields 148.6% at $26.68. The yield for all 16 is 68.2%.
Call me crazy but this so far really helps balance out the 10% cash I have earning 4.2% and I don’t have to get too aggressive on anything else to achieve my goal of 8% on all equities, etc. invested for income. It’s only been 3 months so I will keep you all posted on how my experiment goes. DYODD
Every time I look at a 12 month or more chart of those yield max schemes they always seem to be down 50% or so while paying 50% yields. It takes a special situation for them to actually increase in value while many situations cause them to decline. It is basically playing with fire.
I randomly chose one from your list I never heard of. DIPS.
https://seekingalpha.com/symbol/DIPS
It is very aptly named ticker symbol for at least 2 reasons.
I get the innuendo, fc. And yes, I agree that I may be a dip-s–t for trying this. But, I seem to have bought most near recent lows. And they probably don’t have much gain potential but maybe not much more loss potential either. I am watching both the price of the ETFs and the underlyings closely along with the distribution amounts when announced each month. Wish me luck?
These things have been a very hot topic on reddit for many months now. You should read the mental exercises they use to justify the purchases. My head sometimes spins when I read about how they discuss this stuff.
https://www.reddit.com/r/YieldMaxETFs/
Of course I wish you luck. It is very possible, with correct timing, to actually make money. Quite a few have done well while some are absolute dumpster fires. It is early days for all of them though.
Tim
Excellent overall assessment – “with rates rising, my high quality low rate holdings are more likely to lose value than gain.”
Agree
“So I will pursue high yield, higher risk alternatives”
Don’t agree.
Some of your more impactful messages for me have been when you said
“Don’t think I’ll do anything today”
THAT is where I stand now.
We are entering a period of potentially high volatility and risk.
We have a new president intent on removing the guardrails of many sections of our economy and geopolitical alliances.
The world today has more uncertainty regarding climate, debt, war, etc etc than has existed since the US established its hegemony in 1945.
I used to be an active skier.
A lesson I learned many times over was “in difficult terrain, when facing uncertainty, focus on being centered over your skiis so that you can optimally handle any surprise hurled at you.”
I’m with Warren Buffet:
Cash and cash equivalents are where you want any changes to go right now.
IMHO
Yes in uncertain times, reduce risk go to cash. 4% sucks but it’s safe. I am in 15% cash and looking to increase it as some bonds come due. There will be a better opportunity come along.
my current belief that interest rates (long rates) may go higher–simply because of the supply of Treasury debt that has to be sold for the foreseeable future.
——————
if the Japanese can hold long term rates low, so can we – it’s simply a matter of political will.
David
How does political will sell under-priced long term debt?
Japan had banks buy their unreasonably priced debt
Our only option is for the Treasury to buy under-priced debt.
That’s called Quantitative Tightening.
Led to inflation last time
Ooops
Got my terms mixed up.
Buying debt is Quantitative Easing
That’s what led to inflation.
I think you mean the Federal Reserve buys debt in a regime of quantitative easing in the US, not the Treasury
David,
A key part of Japan’s ability to keep rates low is its enormous savings rate. Every Japanese girl is taught to save money from a young age – and they do (Japanese household budgets are generally controlled by women – with iron hands…)
. Japanese gov. has been trying to get folks to spend more money to stimulate the economy, but they just won’t – so the money just languishes in bank accounts.
Tim, you may want to consider high spread floaters and short-duration bb’s: ALL-B, ANG-A&B, ATCOL, CSWCZ, EICB, FITBI, FTAIO, GECCZ, HTFC, MFICL, MBINO, MBNKP, METCL, NEWTZ, NEWTI, OCFCP, PMTU, PRIF-H, RITM -A&B, SAJ, SAY, SAZ, SBBA, SPNT-B, WHFCL, WTFCM, WTFCP. Also, consider the following funds: FLBL, JAAA, SEIX.
All the above have good to great yields and have held up superbly since September when the 10 yr. started its non-stop move higher.
I have several of those there’s less price volatility. The only real risk is bankruptcy risk which doesn’t seem likely but you never know.
MBINO called for next week.
Tim; Did you happen to see my question to you on BHFAP??? it on the surface looks pretty attractive to me, but what am I missing?? On another note to you regarding your “Goal of 7%”, I was taught many decades ago that regardless of your age & goals everyone should have a small % on their wealth in Big Blue Chips for some “growth” to beat that age old inflation monster. I own pretty large positions in “V”, “COST”, “AMZN”, & the “Berkie B’s”. Iam comfortable owning all of them even though Iam now a thousand years old. When I say large positions the 4 togethor make up 12% of my wealth.
Chuck,
I made a decision when I started trading as a business in 1998 , that stocks were for trading and bonds were for investment.
I regret that decision every day, and for the past 5 years I’ve been planning to buy stocks but thought they were too high.
In 2000 there was a day where Nasdaq hit 5100…I stood up in the trading room and declared we would never see 5000 again in my lifetime. Although it declined to about 1000, that only made me more certain it wouldn’t get back to 5000. We are > 20x that level
Now, in deep retirement, I’ve decided to rely on a big investment in a private reit I’ve held for 8 years and the value of my home to keep up with inflation. I’ve been a great trader and a TERRIBLE investor.
If not for a random great year where I came back to trade the SPAC’s in 2020-21, I’d have less than when I first retired because unlike many others I spend a lot more in retirement than when I worked full time,
So, 0% common stocks.
Sorry for the diversion there.
LT, We are all getting old and may not be on our ski’s or surf boards to catch the next wave up in common stocks. Good chance we will be here long enough for the next downhill run.
The times you mention was when I bought common stocks along with the herd and I got burned. My timing has always been terrible.
I have taken a lot of abuse for not being in Mag 7 or for selling my wife’s COST stock 3 yrs ago at 470 and investing in dividend stocks.
But when I point out to her the income and her account is up a similar amount even with withdrawals compared to having kept the COST that pays almost no dividends. I get a hug.
Chuck, Maybe I should make a New Years resolution to speak less and listen more.
You have been following III for years. I have said I want to trade less and hold. But I run into the problem here of things getting called or losing capital gains as values drift lower even though the income I am collecting and yield on cost hasn’t changed. With the mix of holdings I have of lower risk to higher risk bought at what I considered good opportunities at the time I am getting around 8.2% return.
It wasn’t that long ago Tim was talking about locking in 8% returns and probably doing just like I am (was ) doing a mix of lower and higher yielding purchases and a mix of risk.
I certainly don’t want to rush out and sell without a plan. I also found recent purchases really didn’t meet a couple of my criteria and I regret the purchases.
One other thought on this. A lot smarter people than me on here have been talking for several months now about A rated stocks with low coupon starting to break down on price and moving back to 6% to 6.2% YOC meaning the highs they hit on price are dropping and if you hold your taking capital loses.
Just because this is happening doesn’t mean their crystal ball is better, it just means they are tuned into what happens to these stocks when other things are happening because they have been watching what happens far longer in this niche of the market.
Back to your question of blue chip growth stocks that have little to no dividend value. Nothing wrong with owning some. Heck, they are blue chip because they have either been around a long time and are executing to plan or newcomers who are executing to plan. Also they are desirable to own because they are in demand by the herd. ( individual investors, retirement funds, Mutual funds, etc. etc.)
Chuck, you have been around enough to have a feel for what you own and what is going on in the economy. Don’t ask us. Go by your gut feelings. Nothing wrong with owning Blue chips and the amount you have. But maybe it’s time to rotate out of something that is 50 times P/E and trade it for something that is 15 times P/E or go with a different blue chip sector that is down, people have to eat and drink.
Or just sit tight and not worry about capital losses if you feel good about what you hold.
I have a love hate relationship with WMT They are well stocked but they lock everything up and it took forever to find an employee. When they woke up and realized AMZN was the king of internet sales they had to play catch-up and build a site from the ground up and at first it was a joke. I kept e-mailing them and telling them post on the site what was in the stores, not what some vendor in China was selling. Finally they changed. Now I look and can tell if something I want is in stock and at which store. They are using their strong advantage that AMZN doesn’t have.
Choose wisely Chuck and enjoy the New Year
CHARLES M. Thank You for the kind words as always. I feel after all this time that now we are “friends”. Regarding AMZN many folks don’t understand that they have lots of levers to pull. Their AWS division is the true money maker which does not compete with WMT. Regarding WMT I love the company but years and years ago I chose to own COST because I felt there was much more “growth potential” with them building on average 25 to 30 new stores per year. So while WMT is closing down stores that are not doing well COST is actually adding stores. WMT has about a factor of 10 more stores so I feel their growth at this point in time is somewhat limited. They’ve had a great 24 months but its all been basically multiple expansion. There’s an old Wall Street cliche that says “Its not timing the market but time in the market”. Good words to live by. I bought V at its IPO in March of 2008 and still own it. Bought the Berkie B’s also at their IPO in 1996. Since I live in Omaha that was almost a no brainer.
ChuckP See, you know what you’re doing.
We went to a CostCo opening a day after Thanksgiving. Cheap gas, and it was so popular I couldn’t find a spot to park even after multiple drives around. My general feeling was they did good business but a lot of window shopping as I judged the carts not as full as if it had been a normal shopping day. Some vocal local populace were against the store, but close to the freeway in a semi business park area I think it was people who like to complain and don’t have a membership. Love their parking, More thought given to wide spots than how many spots they can shoehorn in.
As for Growth stocks, well maybe if I was younger and have time to ride the peaks and troughs of the economy over decades. But my idea of a “growth” stock now is a slow and steady grower that pays dividends. I keep testing the waters and have some low-ball bids out.
Part of going fishing is just to enjoy the time and if you don’t catch something it doesn’t matter. If I do catch something and it’s not what I want I throw it back and keep fishing. Once in a while I throw something back I wish I had kept and other times I regret not throwing it back. ADM & WHR come to mind.
CHARLES M; After reading your comment about driving around the parking lot in Costco and having a really hard time finding a parking spot I thought you would enjoy this true comment from YOGI BERRA. “Oh nobody goes to Costco anymore, as its too crowded”.
Chuck; I agree with your evaluation of Costco. I’m in the rainy northwest and our son works at Costco HQ in Issaquah, WA. The numbers that roll off his tongue are simply jaw dropping. A very well run company.
Gary; Thank You for the very kind words. I love my Costco stock and I also love shopping there twice a month. Before he retired I use to call their CFO Richard Galanti with my dumb questions. The thing that stuck with me the most was he always said they plan on opening 25 to 30 new stores every year as long as they can find places to “grow”. As your son knows they have plenty of growth left in front of them. I believe they have only 891 stores worldwide. Lots of room for more stores.
Tim;
I have been adding a bit more SAJ and OXLCN. SAJ matures 10/27 and OXLCN on 6/29. Should fit into your 7%+ goal and pretty safe.