Sea of Red Engulfs the Markets

Wow–it is a lousy day for both common stocks and preferreds (and baby bonds).

We see 345 preferreds are down out of the 476 we track. The average share of $25/share of preferreds and baby bonds are off 14 cents on the day–certainly the biggest loss we have seen in months, but in the big picture of the sharp runoffs we have had recently its not too much.

Our personal portfolios are down a small amount–I’m talking 1/10 of 1%, but as TechGuy noted earlier he is seeing a lot of red, in particular in his mREITs.

With the 10 year treasury now at 1.77% we can expect plenty of turbulence in the next couple of weeks. Here is my plan.

I will likely not sell anything at all–I am positioned where I want to be with plenty of dry powder available which is in money market now–just waiting for ‘opportunity’. Likely I would want high quality preferreds–maybe some of the CEF preferreds will come down to reasonable levels. Alternatively if any term preferred or baby bond with maturities in the next 3-4 years takes a drop I might be interested.

Bea noted in comments earlier here her short term CD which she had at 2.4% just matured and she is now staring at a 1.9% for reinvestment, so for income we all may be ‘forced’ into riskier assets.

For newer income investors now is not the time to panic–this is more a time to keep your eyes open for solid issues that were priced too high that might come into buying ranges.

Here is a google spreadsheet showing share losses–maybe bargains can be found.

19 thoughts on “Sea of Red Engulfs the Markets”

  1. I am looking at those 52 week lows set in December, and going to keep my powder dry for now.
    even with the selloff, most are still trading above par, and well above their 52 week lows.

    1. This is when the fun starts. Go down another 10% and things will start to get very interesting. No way out for the trade issue as it looks like China will play the long game on Trump. He will either capitulate and get nothing or risk running into the election cycle.

      China has its own problems with Hong Kong. A brutal solution could set them back decades. No more Olympics for you. The Belt & Road countries are already onto their loan shark strategy so no love there.

      77% of S&P companies reported and -1.0% down earnings growth. Small to mid-size frackers looking bleak on the high yield side too. What’s not to love? As long as it does not spread to the broader fixed income market then things should be bouncy for awhile but nothing too much to worry about. If general liquidity dries up and the financial freezes up, who knows.

      Market is -6.00% off the high on the 26th. Lots of negative news piling up.

      1. Dow Futures FMV -500, NASDAQ FMV -135

        It will be interesting to see where we actually open. China being declared a currency manipulator by Treasury just ratcheted up the tension a few notches. What next ?

  2. Confused me am. Traditionally, when bond rates go down, higher rate utilities, preferred etc value goes up…..people seeking higher returns.

    So the past few days fed note/bond rates have dropped – as well as preferred.
    HUH??

    1. Bill o – nervous nellies jumping ship. Some folks simply don’t want the stress of potential capital losses. At this point I care more about the income stream so capital movements are not huge stress to me. Preferreds have simply been ripe for harvest so folks bail.

  3. Just an observation: My preferred issues are down an average of .75%, my CEF funds are down an average of 1.83% and my two issue of common are down 2.76% today. Seems preferred shares are the place to be in pullbacks.

  4. At this point despite having a big paper gain on all my positions, I’m just going to let all of them roll off or get called. To get any yield right now you are taking 100% credit risk. I’ve sold positions in the past for capital gains, but right now I’ll just keep them for cash flow.

  5. I have been buying PFF and PSK two days before ex-div and selling 1-2 days after. 35% of my assets. I got out reasonably on Friday afternoon,
    made .06 cents a share not the .16 cent dividend. Glad I did. I also will keep my other holdings looking for opportunity with that 35%. I will settle for money market meanwhile and suspense this monthly gamble. I am thinking this lasts a month or more. We shall see

  6. Even with these big drops things are still expensive. Most of the good stuff is selling at YTW in the 3-4% range. Not eager to sign up for those kinds of returns.

    1. Yes bob-in-de—-by bargains I am thinking a couple dollars/share lower—a panic of sorts–this isn’t it.

      1. Tim, I wonder how realistic it is to expect that kind of sell off with the 10 year at 1.75%. Do you think that kind of sell off can happen without rates moving higher? I have done some buying today of utility preferreds and decent coupons that are callable with meat on the bone.

        1. rk–it is not realistic, but it happens. Mostly it is wishful thinking–and it would require a full blown panic that would make today look like a walk in the park.

  7. IMHO nothing has changed. Interest rates are still headed down. I am not sure the US can avoid lower interest rates as more money pours into US investments that still offer a greater than zero interest.

  8. Great advice, as usual. HK, currency devaluation, Brexit in October, second quarter in a row for flat S&P 500 earnings. Gotta ask yourself what the next risk-on catalyst could be.

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