Just what we need (NOT) – higher oil prices. The jump in oil prices in the last week is one more dagger in the consumer heart. More than one commenter on this site has noted that if you want to know where the economy is going just watch energy prices. With oil prices up 10% in the last week the ‘have nots’ will be harmed more than the rest of us as gasoline prices will move quickly to match the higher crude prices. It will be interesting to see where this goes as the summer driving season arrives.
Last night I posted in the ‘headlines of interest’ new statistics on bankruptcy filings in March–I don’t think the absolute numbers are that huge, but they are way up in the last year. No surprise here – when the free money stops flowing from the government there is certainly some percentage of folks (and companies) that will go belly up. This will be interesting to watch over the next number of months as we inch toward the so-called recession ahead (when?).
Well markets are pretty quiet again today–equities up slightly with interest rates up a couple of basis points with the 10 year treasury yield at 3.46%. Seems like there isn’t current news to move markets–and the big news of the week is the employment report on Friday–and markets will be closed Friday for Good Friday.
Last Friday I started setting up Good Til Canceled orders on many issues–all which would be additive to some of my current positions–I will try to get a detailed list out yet today of what I am doing and why. Needless to say I am looking for ‘sales’—with CDs still available in the 5% area I need to be paid for ‘risk’ so my buy prices are at ‘sales’ levels.
Well let’s get this day rolling and see what the markets bring to us.
Wow, the bankruptcy filings were concentrated in 2 areas…
Commercial chapter 11 filings (including subchapter V) increased 79 percent
Not surprising, cheap debt coming through that can’t be rolled over….
So the zombie companies kept alive by cheap debt are filing have to go to the hospital to get treatment…
Tim. .As you said , Not,,on oil prices going up
But, we are sure,,, Tesla,Rivian, Lighting,, are ready and happy.. Georges
,
I thought this was a good read on the recent OPEC+ oil price news.
The authors are professors from Yale.
https://fortune.com/2023/04/03/energy-analysts-gaseous-calls-russia-invasion-ukraine-economic-groupthink-oil-prices-sonnenfeld-tian/
Tim, instead of it oil price increases being a negative, I think it is reasonable that portfolio’s have a small allocation to them. I have posted many times how that was dead money for many years before springing to life starting in 2022. Everybody can make their own forecast of oil prices, but my highest probability bet is that a) they will drop in the upcoming recession, then b) rise over the longer term. If I did not have an allocation, I would be researching which ones to add and hoping for a good entry point. Lots of ways to participate in oil/gas. I agree that cheering when you see higher gas prices at the pump will not win you many friends, other than in Texas. . .
I think the comparisons of the current yields on preferreds to short term CD rates is not necessarily the correct way to look at things. With preferreds, you can make money by 1) dividend/interest payments and 2) capital gains.
It is almost a certainty that you will not experience a material capital gain from a short term CD. On the other hand, you could potentially experience capital gains with preferreds, regardless of whether you think the fed will keep rates at current levels or will begin to cut.
Here are a couple examples:
1) AQNA closed yesterday at $23.01 and has a current yield of 7.45%. It will begin to float on 10/17/23. If rates do not change, the approximate floating yield would be 9.6%. If it is called before it begins to float, it has potential for a capital gain of 8.6%.
2) WRB-H closed yesterday at $17.30 and has a current yield of 5.96%. It is a fixed rate issue with a coupon of 4.125% so it is unlikely to be called anytime soon. Let’s say you believe that inflation and rates come down. Also, let’s assume that the prevailing current yield for a preferred from this issuer will be 5.5% in the future. Then WRB-H would need to be priced at around $18.50 to have a 5.5% current yield…this would be a 6.9% capital gain over yesterday’s closing price.
These are just a couple examples from issues that I own. The combination of current income and potential capital gains keep me invested in preferreds. I try to stay hedged on the interest rate outlook aspect.
DW, you left out potential capital losses with preferreds.
Danzeb, If you believe that a recession is immenient (I do) during which preferreds prices go lower, capital gains will be even greater, and down side is limited.
Cheers! Windy
DW,
You also need to take into consideration the fact that preferred stocks can stop paying dividends for years at a time, some have. If they are cumulative and the company doesn’t go bankrupt you may get paid someday.
CD’s have to pay interest unless the institution goes bankrupt, but you will be made whole capital and accumulated interest by the FDIC. Just another thing to consider.
“The return of my money is more important than the return on my money” Mark Twain.
Here are my largest preferred holdings below. I don’t lose a lot of sleep worrying about non payment or bankruptcies.
NI-B
SR-A
CMSD
SLMNP
BAC-L
USB-A
CNLPL
ET-C
PRH
DTW
ALL-H
WFC-L
STT-D
WRB-F
CHSCM
I think all of you are correct. It depends on what you value and your goals are. This has been a very odd year. I have crawled over plus 10% on the year despite now having well over half of my money in CDs, IBONDS, and GBIL. Plus I have some longer duration bonds. Having this capital “protected” so to speak has giving me the liberty (courage maybe) to hit and run on a lot of issues I have made very nice cap gains on issues I would never hold long term. Im still grinding away, leaning towards easing back into safer ones and peeling off those bank preferred run ups. But personally, I just love, I mean really love that I locked down those 5% five year noncallable CDs that are salted away. And the 2-3 year 5% plus noncallable CDs I also bought aint so bad either.