With equities off around 850 Dow points at this moment I reviewed the $25 preferreds and baby bonds and find they are getting slightly more attractive with the average price off 9-10 cents today–not exactly a bargain, but heading in the right directly.
When we have sizable down drafts in common shares a point will be reached where ‘the baby goes out with the bath water’. Where is that point in time? I think it is way lower on the S&P500 than the current level–no one believes this is an inflection point in equity prices–sure a wiggle of a few percentage points–but ‘buy the dip’ is likely to come in soon – maybe late today or tomorrow and common stocks will move back higher.
As I reviewed my holdings today they are for the most part unchanged–some up a dime, some down a dime, but on average unchanged.
I will keep my eye on the market closely and be there to buy if true bargains are created, but I won’t hold my breath waiting.
12 thoughts on “Preferreds Falling a Bit, But Bargains are Rare”
The median preferred was down -0.38% while baby bonds/terms were down -0.23%, so as Tim indicated it was not all that bad today in our issues. That said, there were 38 issues >$10, that closed down >=2.0%. Here are the largest losers:
In addition I did see a little bit of irrational selling in other areas today not directly related to preferreds/babys. In the unlikely event I see more of that tomorrow, the small beads of sweat will appear as well as numerous sell orders will get entered.
Pretty amazed to see the 10 year close below 1.2%
Weren’t the pundits crying about inflation recently?
Low interest rates with high inflation is entirely possible. The Fed has decoupled the two. They can and (I predict) will keep rates low no matter the inflation rate. They have the power.
“With great power comes great responsibility”….
can also be translated to “With great power, comes the potential for great irresponsibility”….
Agree. The five years as a reset index is not far enough out for escaping the virulent Fed. I suspect that we will see more reset issues of many stripes with the indexing-term being ‘earned’ according to investment grade outlook. The put protection on LIBOR and short term from the Fed is COMPLETELY counter productive to the realistic risks of investing. It is now OBVIOUS who and WHAT their real agenda is…(see I made no commentary!)
I read and study Lyn Alden Schwartzer’s work and she has some magnificent longer tomes for laymen on her site regarding the past historical and factual actions of the Fed, the circumstance and times the decisions were made within. It is a truly remarkable, well organized work. It has helped me make sense out of investing, AND how to position, at this time through study and the changing non-US centric world.
Unfortunately, she has turned DOWN my proposal for marriage. (HAHA)
Joel – how can I not comment.
I’ve written often about 5yr resets but to emphasize the protection you are buying is that you won’t be left at 5% in a 7% world. Meaning protection from higher rates. The Canadian min rat issues will also protect you from lower rates in that they will generally force an issuer to call rather than pay you 5% in a 3% world. (You are still stuck with reinvestment risk.) You are seeing that right now with Canadian min rate issues being called as they come up for reset.
By far, the toughest scenario to protect yourself against, certainly with “fixed” income, is the one we are getting right now: Fed forced low interest rates with inflation. Ignore Joe, inflation is here and once on a roll is very hard to contain.
Alden is a good read for macro issues. I align with her macro thinking 99%. She is an excellent communicator and explains complex fiscal/monetary issues in easy to understand language. Or at least as easy as is possible.
As to marriage, I think you would find out that she is already taken.
Short term money t-bills are under pressure with so much cash in the system needing short term collateral. To release pressure in the money markets and put a floor on short term rates the repo market was opened up for overnight swaps.
Unintended consequence of this was now financial institutions can swap any type of treasury for an overnight loan meeting the requirements for money markets. Buying of 5-7-10-30yr bonds becomes an option causing rates to plummet on longer dated treasuries.
Put another way, The Fed has implemented Operation Twist II without ever having to announce it! They have pulled the whole yield curve down and flattened it, too.
‘Pundits’ you mean those who point out that Fed QE has swelled from 4.1 trillion to over 8 trillion dollars since March 2020? Those pundits?? How about the ones who warn against borrowing another 3.5 trillion and spending it on pork? Them?
Trying really hard not to settle for 4.0-4.4% YTC safer picks but that is about all there is out there right now. Anytime I locate something with a reasonably higher YTC there is always a big catch to it. No real bargains to be found and as we all know many here search every corner of the market when it comes to preferred. Even the odd balls.
Getting hammered on;
Energy Common Stocks
Except for Tobacco, these industries all get monkey hammered often so no biggie here.
I noticed my bond CEF’s were going a bit whacky last week. The bond CEF’s tend to move up/down quickly before major moves.
NWGG, Re: these sectors:
Second wave down after first wave up from almost a year ago, expected. It’s got a long play out as in years. Count your divs, buy with puts (sell puts on your cash), wait on calls or at best stay very close so you can roll, go fishing or to the beach. Funny how the whole thing “waited” for July options expiry last Friday. How else are the pros going to buy lower?