Stocks and Interest Rates Tumble

While there was a time when I would react to global war type situations, time and time again, they have meant little to income investors.

The situation in Baghdad yesterday (the killing of the top Iranian general) brings out a ‘knee jerk’ reaction with stocks falling a bit and interest rates moving lower in a small flight to safety–but unless we see some kind of major escalation in the tensions it will be just a ‘knee jerk’ reaction.

We could see a minor move higher in the quality (i.e. Public Storage) low coupon preferreds as a small amount of excess buying pressure comes in–but likely not anything more than that.

So, for now, there is not a reason to get nervous on your holdings–let’s watch for potential escalations.

56 thoughts on “Stocks and Interest Rates Tumble”

  1. Question (and rant) of the day:

    What do Cobank, First Horizon, HSBC, Lloyds Bank, Sovereign Bank, AXA, Liberty Mutual, Land O’ Lakes, Oceanspray, BNP Paribas, Macquarie, Societe General, Standard Chartered, and Credit Suisse all have in common? Aside from every one being known to the readers here (or should be known)?

    Everyone of these companies issues 144A preferred, that you can’t buy! (Or shouldn’t be able to). Unless you buy a fund, in which case you can buy all of them. In just one fund, FFC.

    These companies are so dangerous to your financial health that our government watchdogs, God bless their souls, have protected you from them. (Unless, of course, you buy a fund, in which case they are perfectly safe.)

    But at the same time, I can buy CBL, PCG, FNMA, MH, and AHM, no problem. I think I can even buy Lehman Brothers!

    And who says the Government doesn’t do a good job of protecting the American People?

    1. Bob, several years ago, I crawled under every rock to try to figure out how to get that Land O Lakes issue. I think you already know how well I succeeded in terms of landing any, ha.

      1. Land O’ Lakes and Oceanspray are locked down tighter than a girls’ dorm in the 60’s. I don’t know how so many Cobank issues got out but I’m not asking questions.

        1. Best analogy I have read in a long time, Bob. Based on personal anecdotal info, there were more breaches in the security during the early 80’s, ha.
          I think Camroc was the person personally responsible for getting the CoBanks rocking on TD on a call in if my memory serves during our communications.

  2. Yesterday, the US sent 750 marines to Iraq. Today they are deploying another 3500 troops to the middle east. It will be interesting to see if this is the start of a trend or just two fairly meaningless data points. The greater the number of troops, the greater the chance of blowback from all sides, including from disgruntled citizens of the country hosting the troops.

    That said, even if this escalates into a broader conflict, it’s not necessarily bad for risk assets. The market pretty much bottomed at the start of the 1990 and 2003 Iraq wars.

    1. The play on troop movements is the Kuwait market. Agility, Anham, Supreme, etc. All have had/have the food contracts. All have been indicted for fraud. Has nothing to do with D or R as Bush, Obama and Trump really have no choice. Simply how the game must be played in the Middle East; use their shadow government owned companies. Might be out of the sphere for most here but it is a profitable market. The remaining contractors are all US PE firms. These also know how to play the game.

  3. Have a lot of stuff to sell for fixing profit but I see absolutely nothing in the buy zone.
    So started to build positions in CAD-nominated resets, at least there is no redemption fear. Will see…

    1. CAD is looking strong on the back of higher commodity prices. USD appears to be in a topping phase. I’m not buying anymore resets here but I like my CAD exposure.

      1. >CAD is looking strong on the back of higher commodity prices. >
        Agree, this was and my point why I start to move to CAD.

  4. I sold off several things. Partly because of the geopolitical mess but mostly because of the high prices on my preferred stocks. When you consider moving cash to the sidelines and then prices keep going up beyond what you ever expected, SELL.
    Yes I’ll keep trading. Just won’t have a lot of active positions for now.

    1. Martin G – I sold 2 items yesterday – more of the bounces after ex date type and in my ‘flipping and capture’ accounts. Prices had kept moving higher–last week I though maybe they were peaking after the weekly gain was minimal, but then the new year arrived and they continued the up move–some to the point of absolute silliness.

    2. I must be missing something- if prices are rising- sell, and if they continue to go up, sell? —
      thanks

      1. How high will it go? Your guess is as good as mine. I’m doing what fits my overall strategy. Minimizing risk is part of it. I’ll still be trading like always, just won’t be holding as many active positions for now.

        1. Martin, I suppose we are similar. Im not looking to squeeze every cent out of a trade as that is entirely unknowable as you stated. For some of my flips I have no intention of holding long term, and basically have a number in mind to hit and run. This allows me some nerve to execute the trade.
          If I had to hold, I would never have bought. MBNKP is perfect example, as it keeps rising, I keep selling. This issue is nowhere in my comfort zone. Im sure not looking to hold long term a Bank thats parent cant pay a dividend and issues 9% debt. And certainly not a bank the owns a professional LaCrosse Team…Huh? But these trades makes an excellent “greater pig theory” to enact a flip on.
          Of course my perspective is based on my general risk profile in owning. Some may think its acceptable quality to hold based on their risk tolerances.

      2. Gary–for me it is sell the ‘flips and captures’. Then if base holdings move higher and higher sell them too–I haven’t touched base holdings, but individual flip candidates have been sold–although I still hold a few more that may go soon.

    3. Martin G, Same here…sold off two more today. One was AGM-D at $27.10/11 which traded $1.10+ lower in the last 30 days AND the ex date was 12.31, so a near $1.50 or solid 5.5+% pick up from the nadir in a few weeks. That’s an annual dividend in <30 days. Much as I’d like to be building the income base, the silliness in some of the pricing is forcing our hand. The holding bin just keeps shrinking.

      Also some volatility in the mREITs; $-swapped AGNCM for AGNCO. Picked up a handful of “free” shares in the trade.

      1. AGNC preferreds have been an interesting swap. M pays higher rate now, O will have significantly higher floating rate but only if not called. Their prices relative to each other have been bouncing around, creating a lot of swapping opportunities. Lately AGNCN joins in the fun, shorter call date suppresses the price after the runup.
        I sold all of them over the past 3 days after ex-div because of the high price, though I won’t wait long to start jumping back in.

        1. Also liked AGNCO here with a rare higher YTC than AGNCM and the 6-month longer duration in case rates drop hard – but the way these move that theory could change shortly.

          1. I had bids on O but got greedy and set the price too low. Grabbed some N at the close for 26.03 after selling the last of my M just 9 cents lower. They’ve never traded that close together.

      2. Alpha, I basically always stay invested moving from one flip to another outside of the cores. But even I have cash on sideline right now as I simply sold to much. Essentially punted on about 20k today buying 180 shares of CBKLP at $102, and just let it hide out there and risk call next divi payment.
        Oh well, maybe one of my few options left will present a buy opportunity next week.

        1. Grid, I have to keep reminding myself not to let lack of options turn into bad decisions. Maintaining allocations but caught myself violating my own rules on margin above TNX so been in sell mode last few days and right up to close today. Thankful for the CAD allocation which is becoming a surprisingly large part of my core, though unreasonably large position now in cash which continues to grow. Index rebalancing or market inefficienceis may present opportunities, but outside of that – wow, it’s lean out there.

          1. Alpha, my resets are just off limit holds. They will do their own thing. But I strictly stay within my boundaries of the issues I will hold, flip, or buy. For example CBLKP has always been on my list and I have owned before several times But today it became my punt issue. At 102 you cant get hurt here. So its time out money.

        2. Using some sidelines money on the revolving door of GAB-G GAB-H and GAB-K. All pay the same 5% plus whatever I can squeeze out of the spreads and the arbs.

      3. alpha8, my belated many thanks to your post. Sold all my AGM-D and recycled the proceeds mainly to BPR (giant private equity fund Brookfield eREITS) plus 5 more shares of Gridbird’s SLMNP @ $1,035 getting 5.8% QDI non callable. Thanks to Tim, greatest income investing website on earth and Gridbird for his astute mind and eyes. I saw Lord Xot posted ET (Energy Transfer).

        1. I own a bunch of ET, so I’ve started an IRA position in the CEF FEI, which also owns a lot of EPD, MMP & MPLX, my top MLP holdings. Pays monthly at about a 10% rate. Leveraged @ ~28%, in case that worries you.

          I don’t own a lot of it, but I gotta do something since I bailed on some of my cobank pfd. 🙂

          JMO

          1. I’ve got some FEI in my IRA portfolio as well Camroc. I like the fact that it pays monthly and gives you exposure to a number of MLPs without having to deal with K-1 tax reporting. H/T to the HDO crew over at SA for bringing the name to my attention.

            1. I’ll have to take a look at FEI. Somewhat similar sector-wise and where I have a small position is SZC, also a leveraged CEF and paying around 12% on a monthly basis. Sector may be putting in a bottom but hard to tell in this wild-cowboy industry.

  5. Personally I’m concerned. Iran is not going to turn the other cheek.

    On the other hand, it seems the LSM talking points over the Iraq embassy attack was… How weak and ineffectual trump was against the mighty Iran. They can deny it all they want the lsm is cheering against American policy. They will sacrifice lives to get at the Donald.

    1. If you Prefer–certainly this time could be different, but on a historical basis these ‘dust ups’ usually don’t amount to much. I say ‘usually’–no one can know for sure what will follow and each person must invest for their comfort level and for some that may mean moving to the sidelines a bit.

      1. 95% chance it’s noise, 5% chance it leads to retaliation, war, or some other major event. So the market moves 1/20th what it would move if something happens. Playing the odds.

        1. I think the market moves when an American President speaks. How much it moves is based on how much credibility the American President’s words have.

      2. Hello Tim:
        What confuses me is that when terrorists kill American military folks, the stock market goes up; however, when the U.S. kills terrorists, the stock market goes down. I find that nonsensical.
        If you have an explanation, possibly that the military actions are just making media headlines and are just providing the ‘daily excuse’ for the market to move, that would make sense to me.
        Otherwise, not so much.
        Thanks, Howard

          1. Jay
            American NON-action can lead us to worse than war, a nuclear holocaust. If Iran completes it’s nuclear program, it would do anything and everything possible to decimate the U.S. Today it is theats. tomorrow an attack. I understand that this is not stock market talk, but it appears the market may be affected by geo-politics.

            1. Howard, despite one’s personal viewpoint, the market believes we could be on the brink of war in the Middle East, thus the drop in shares today.

        1. Agree Howard. I pay no attention to the noise. The media today try to explain every day why the market went up or down. Usually it is just noise.

          We killed a major terrorist – people should be happy. But of course you know why some aren’t.

          In any case, this doesn’t impact what I do with my portfolio just like taking out Bin Laden did not cause me to make any moves. The really funny thing is yesterday, the market was up and my portfolio was down as there was a rotation out of or profit taking in some REITS. Today the market is down and my portfolio is up.

          I focus on my income stream. I learned long ago trying to time the market is a fool’s game. Thus I don’t worry about daily market fluctuations

        2. Howard–of course it is all about uncertainty–either way (no matter who gets killed). I know what you are getting at but I don’t want to encourage too much political banter here.

  6. This news won’t make me sell. I wouldn’t be surprised if over a few days that taking out Iran’s top military commander has the opposite effect the headlines are leading us to believe. This general was in the process of planning more attacks on US assets. The swift US response will likely deter more Iranian mischief than it produces.

    1. This news isn’t ‘making me sell’, but it did trigger a GTC sell order on some Lockheed shares I had placed at $50 over the then-current price a couple of months ago.

      US actions may trigger a fall in the market, but usually spike US defense stocks (LMT was up $17+ at one point this morning).
      FWIW – LMT is up about double since the 2016 election. Not really an income stock, but…

      1. camroc, I believe that Schwab allows CBKPP to be traded. If my memory serves me, I have had CBKPP limit orders at Schwab but they never executed. I was not able to enter CBKLP nor CKNQP trades at Schwab. Perhaps Amy needs to come to the rescue. BTW, I hope Amy is OK; I don’t recall any recent posts from her.
        I have accounts with four brokerage firms. Here is the scoop on which of the Cobank trio can be traded at each (as best I can recall):
        Schwab – CBKPP
        Fidelity – CBKLP*
        TDAm – CBKLP,* CBKPP*, CKNQP*
        Merrill – CBKLP, CBKPP, CKNQP
        * – I hold positions
        camroc, thanks for all your contributions through the course of time. And many thanks for your humor!
        Best regards, No. 12

        1. aarod,

          I can confirm that Schwab does not allow trading of CBKLP. But it’s good to know they allow CBKPP – I will try to grab some if any opportunity presents itself.

        2. Has anyone asked Schwab why they would allow CBKLP but not CBKPP? I believe the 144a language is essentially equivalent in both issues so if that’s theoretically their reason, it’s just bogus…. Fidelity is just the opposite, allowing CBKLP but forcing call ins as a minimum on CBKPP because of its F/F feature. I own CBKLP at Fidelity but have a bid in on CBKPP at TDA, not Fidelity for this reason…

          1. You guys are getting ahead of yourself. Scottrade ran on their same old trading platform for a long time after acquisition by TD. It takes a lot of time to get things fully integrated for switchover. The Schwab and TD platforms are different and I read TD has the better technology. So who knows when they flip the switch they may still allow them.
            Vanguard made me get rid of one of those Co Bank preferreds. Bob raised hell and fought back, so they relented and allowed him to keep his. I wont be a sheep next time. Tell them your keeping them by transferring everything to another broker. That will cause them to pause and reflect.

            1. Hi Grid – Just wanted to tell you that I know have 75 shares of CBKLP, bought them about a week ago @ $101.50 Just had to put my toes in the water …
              Bot them through Fidelity.

              1. Bear, for an income hold issue, you cant beat it. You are getting a 100 basis point free ride, with 20% backside loss price support, and of course at your price only a short loss of time if redeemed. And if something drops between now and then it actually saved you money if redeemed.
                Of course for people wanting income stream security and not as worried about capital defense, it may not be as appealing. The issue for my purposes was a punt on 3rd down purchase. Not thrilled to use flipping money to purchase these types, but it keeps me out of trouble. One cant play offense all the time, defense gets to play also.

                aarod, Im not understanding your quote, below from who said it. Is it A Rod as in Alex Rodriquez retired baseball player from Yankees? Or was it that career back up guy to legend Brett Favre. Was his name Aaron Rodgers? Cant remember back up QB names as well as I do the legends. 🙂

                1. Grid, lol, You are right No 4 is a legend. No. 12 a backup? Ignorant me! All this time I thought the backup was the guy that became a Super Bowl winning coach, leveraging from how much he learned from the legend and that coach that seems to make any half-decent QB shine. Cannot imagine what that coach would have accomplished with No. 12. Look at Mahomes.
                  So I’ve been wrong all this time thinking No. 12 was the “displacer” that went on to win a Super Bowl and sent the legend packing – lol. But it does not matter, I love them both. I was No. 4 back then!

              2. Congrats, Bigbear. You got your CBKLP for $1.40 less per share than I did. But since I’ve received a couple of dividends, I’m doing fine with that buy.

                Just for fun, I have a GTC to buy more CBKLP at $100.75. May never fill, but it’ll be a bonus gift if it does.

                Welcome to the club!

          2. Good morning 2WR, what is interesting is that I can place a trade for CBKPP at Schwab, not CBKLP nor CKNQP. I tried placing orders for all three just a few minutes ago. I now have a standing bid at Schwab for 100 shares of CBKPP at 100.05. I wont get a bite.
            Grid, I am chill on this …. like double A Rod’s “R E L A X.”
            Best regards,
            No. 12

          3. The only brokerage that I deal with that gets the Cobank issues right is Vanguard.

            I’ve given up trying to convince brokerages about anything having to do with preferred. The decisions are made by compliance and you can’t get to them.

      2. Camroc, Did I buy my 180 shares at $102 today that was yours. I used dumpsite ALLY brokerage to get them, not my TD account

  7. Thanks for the calming viewpoint Tim. I will be looking for unusual price drops for issues that have been on my radar. Buying opportunities may present themselves, let’s post them on Reader Initiated Alerts as usual.

    1. mikeo–you’re right we could see some isolated ‘deals’ here and there so will be watching.

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