What an Ugly Day

What an ugly day this has been in the stock market–while I hold no common stocks I keep a close eye on what is occurring there. Down all day and each time there is a little bounce the sellers come in–maybe investors are finally believing that a recession is on the horizon?

The 10 year treasury yield has been as high as 2.95% this week and currently bouncing around 2.90%-2.91%–income issues haven’t been liking interest rates or apparently Jay Powell saying 50 basis points are on the table for May. I don’t really get it as I thought that everyone was already expecting that sort of an interest rate increase–apparently not everyone.

Once again $25 preferreds and baby bonds have been spanked for a 1% loss this week–these weekly losses are a bit painful as the dividends and interest payments are not keeping up with the capital losses. Just the same I haven’t sold a think–nor have I added more this week–just too damned busy with ‘real work’ to even be watching my accounts very closely.

Well with the S&P500 off 2.09% as I type I guess we will see if buyers come in during the last 2 hours or if markets capitulate and drop prices even sharper.

29 thoughts on “What an Ugly Day”

  1. this is somewhat miss placed but follows the tone of this discussion. Been adding positions and “to” positions reducing cost basis where yields are now getting pretty decent. my “standard” I G is pretty tight keep coming back to same issue or sister issues. Need advice on concentration. nothing over 2.5% yet. Thanks for any help.

  2. If the inflationistas jawbone the Fed into causing a recession, it will be a sad day. Inflation has a pretty minor impact on growth and is zero sum (excluding intl trade). Good for sellers, bad for buyers. But a day lost to unemployment can never be recovered as it is perishable.

    The Fed engineered an incredible recovery, especially compared to the post GFC recovery and in spite of a political environment that’s less than pro-growth. However, these gains are now at risk due to inflationistas who think it’s the Fed’s job to tackle inequality (it’s not, it’s the job of politicians).

    That said, companies are pretty tone deaf which only helps the inflationistas. This is not the time to be expanding record profit margins into the stratosphere. It’s a bad look when common people are suffering and it helps inflationistas to pressure the Fed.

    1. It is indeed the Fed’s job to fight Inflation because that is their mandate. Inflation has a major impact on growth if it’s allowed to spiral out of control. Hasn’t the “transitory” nonsense been debunked yet? Need to address the underlying causes.
      Politics and government have painted the Fed into a corner with their overspending but most of the blame goes to the Fed itself for allowing it to happen by expanding the money supply too fast. They should have tightened us into a recession last decade but it was not politically expedient to do so. Now the scapegoats are all lined up.
      I don’t think they engineered a recovery as much as they papered over the problems, kicking the can down the road. Protecting the economy from every disaster going back to Long Term Capital Management failure, that’s when Greenspan reversed their philosophy.

      1. “Inflation has a major impact on growth if it’s allowed to spiral out of control.”

        Yes, if it spirals out of control like Germany in the 1920s. No, if it is not resulting in a devaluation of the currency like in the 1970s. Let’s do a thought experiment. Let’s say the decimal point was moved over one place on every price and wage overnight. That would be 1000% inflation overnight. What would be the impact on growth?

        “It is indeed the Fed’s job to fight Inflation because that is their mandate.”

        Yes, mainly for equity reasons. Inflation causes a lot of inequity (hits poor people the hardest) but the inflation mandate is not related to maximizing growth. If we’re concerned about equity (which we should be), there are better ways to address it than with Fed policy which should be mainly concerned with growth and the value of the USD.

        “I don’t think they engineered a recovery”

        You can look at it in another way. They didn’t stand in the way of recovery like they did in the post-GFC environment.

        “they papered over the problems, kicking the can down the road…They should have tightened us into a recession last decade”

        What’s important is keeping everyone employed in a productive way. We should not lose perishable employment time to avoid the possibility of some future, theoretical catastrophe that the “experts” have been wrongly predicting for decades. T

        The USD is strong and gaining strength. There’s no reason to tighten beyond the neutral rate which is probably around 1.75%.

  3. Looking at the good side of all this. Next year’s RMD should be much smaller than the one I have to meet this year.

  4. I think if you allow yourself to be driven by a Market that moves based on headlines not fundamentals, a compromised Fed that doesn’t know what’s it doing…if it ever did, an economic team in the Whitehouse and the US Congress that must somehow be channeling Hugo Chavez economic policies and mass media monotonies usual methods of generating page views by instilling and creating fear then its easy to be carried away by the current events.
    The Fed, the BOE, the Canadian Central Bank, the RBNZ, the Korean Central Bank et.al. have been telegraphing the same message of rate hikes for months. The BOE, Canada and RBNZ have already taken action. What’s on the table is that recession is the primary tool for cooling inflation. So where is the feigned surprise reaction coming from?
    Anyhow… Fixed Income at least in my mind, whether its non-callable 3% brokered CDs, Corporate Bonds with 3.5%+ coupons selling below par, high quality Preferreds at $20-$21 or 2.85% 3-5 year Treasuries are a gift that will soon disappear and should be taken advantage of before rates peak in the next 3-6 months, before inflation tapers off in the 1st qtr of 2023 and the Fed redefines the neutral rate at 2% and then starts back tracking.
    My only real fear is the no longer Black Swan event of tactical nuclear weapons being used in Ukraine and that spilling over to the rest of Europe and potentially the United States.

    1. Last time the Fed backed off rate hikes and QT we didn’t have much Inflation. A lot of investors assume they will back off again when the market vigilantes react. But they might not back off so quickly if they are determined to fight Inflation. Especially if they believe recession is the only way out.
      My concern is why did they wait so long to start tightening? Raises some red flags.

  5. While the capital losses on preferreds have been enormous….no matter what the company is….if your only goal is to buy preferreds of companies that 90% chance will always pay the dividend…..then who really cares? You now have possibly 2yrs of the fed dropping the preferred prices to zero to build up your income. Imagine 10yrs from now when rates are back at zero once again, and you own huge amounts of IG preferreds at $20 or less…..and now the prices are back at $27, while you’ve been collecting 5-8% on literally everything just to wait. Sounds pretty great to me.

    1. Exactly

      However, rates could be back to zero in ten years sounds like a stretch.
      My spiedy sense says 3 years.

      1. Pickle…Most, including myself, feel that as the pendulum swings from overly loose money to excessively tight, a recession is likely, which will bring rates down again. Another force may manifest itself that could oppose the dropping of rates in a relatively short time however, that is not discussed very often, and that is de-globalization. If supply shortages are more persistent than expected, geo-political tensions rise, in regards to China especially, and the populist movement that is gaining strength here and around the world as well continues, the possibility that more and more things are sourced in the U.S. could have the effect of keeping inflation, hence rates, “higher for longer”. Another reinforcing factor, and additional offshoot of populist sentiment, could be an anti-immigration policy that causes labor shortages to persist longer than expected, adding to inflationary pressures. You just never know.

    2. Well said DD. Even some baby bonds have been hit pretty hard, albeit lower grade issues. I have not been afraid to add to positions on the way down on many preferreds and baby bonds. The bottom may be a ways off but I like the idea of ratcheting up income and lowering cost basis at the same time.

      1. I’m adding to my positions almost every day, since the preferreds just keep falling daily. Watching my annual income grow each day while loading in potential capital gains from a future call gets me out of bed in the morning lol. If we get another 12mo of this I might be able to retire finally lol.

        1. The problem with doing that is I might run out of money to invest long before the prices stop falling. So I’m adding very slowly. actually I’m still dumping as much as I’m adding.

          1. Yep, in the “good old days”, it was selling to raise cash to buy something else.
            Now its being done to keep cash levels at a meaningful amount if not even more than that.

            1. selling to raise cash to buy something else cheaper in the future. Same idea in a time warp.

    3. Daddy, I certainly agree the income is the big reason for owning. But personally, I just couldnt accept the capital losses I knew was coming from the recent issued HG preferreds. There have been many many issues that still have returned small positive returns or better allowing for the dividend received the past 12 months….Tomorrow could crater those, who knows….
      Even for the buy and holder types, one suggestion I would make would be to consider at some point that may become beneficial consider switching out of a higher priced preferred and buying the one with the lowest price under par, if yields are comparable. The reason I say this is to your line of thinking that yields could drop down the road. There is preparation for this just like there was for yields rising.
      Here is the reason, some of these may never see $27 again even in a low yield environment because they may be call anchored from being past call at that future time. For example… Lets use BAC-B and BAC-Q. Q is down 25% YTD, while B is down only 4.5%. This is pretty obvious because of the higher paying coupon one could have hide out in over the new issue.
      Using present pricing, and if rates drop down the road, Q has room to run north. While B wont because it will be past call then and call anchored with an above market yield. The call anchored stuff works in both directions. It saved tons of capital on the way down, and inhibits capital gains on the way back up when yields drop.
      Its still too early for me to play this game in issues I hold, but its getting closer and I will pull the plug on these situations and do rotations.

      1. I try to balance the high yield names, such as Safe Bulkers B and C and the recent SWAN RIVOP. Incredible that RIVOP is so unloved as you would probably have predicted. Is this like OPP-B? Then the coupon seems to favor RIVOP, 6%. One of the things Doug Le Du used to set is: the theoretical acceptable coupon AT TIME for investment grade names (either Moody or SP). Currently, this number is probably 6.5% which very few new issues are offered. I bought some TDS-U, GNL-B following Tim’s post. Because there is substantial call on the partial call announced by Safe Bulkers, Inc., I find it challenging to replace the lofty 8% QDI. Funny that the bid for SB-C and SB-D seem ridiculous to me from arithmetic point of view. Obviously the bidders emphasize CY rather than YTC. I will not buy the Safe Bulkers common, which started paying just $0.05 in the recent quarter. There was one quarter when SB paid $0.01 then it stopped. Of course for those have the confidence of the most ethical Greek brothers on earth AND believe in their plan, the common stock went from around $1 just a few years back to $4. CMRE preferreds should be safe. Never even bothered to check their financials these days. All way above par. I still have my legacy shares. ATCO, the old Seaspan, which I no longer have. Not cheap either, way above par. My largest non Safe Bulker bet is probably ATLCP. Then I really hate to buy more. Bought some WCP eREIT with some European eREIT in its portfolio. Both WCP and IRM (Iron Mountain) seem to do fine. IRM continue to work despite some SA writer claims that it is over valued (the same group of people Jussie Askola and his West Point Early retiree) who recommended IRM way back in my 1 year subscription to Rida Morwa’s subscription MACHINE. His timing is just as bad as RIda. IRM was over valued. Someone else wrote on MPW, which I have. Today it crashed down 7.7% to $18.76. I have some legacy SBRA (senior healthcare similar but different sub sector) as MPW. It is definitely unloved with leverage a little above 3. Then it pays lofty dividends. STWD, which I have some legacy shares from Lord ‘Lot from Silicon, could be risky but the CEO seems to have well connected, first with the prior administration and not so bad with current, I suppose. It is a high dividend payor. My best single stock is EVA, just reorganized as a C Corp. It is renewable energy, it claims, burning wood chips in high temp furnaces and capture the energy with recent continuing effort to increase sales to Germany and Japan which are willing to pay for it. It has declining profit margin and negative GAAP base negative earning, all EBITDA. It went to some ridiculous $92+ a share. Rida brought me to EVA long ago. He sold whenever there is some higher yield names e.g. some high risk MLP. I bought EPD since the days of Rida. I did add some shares to my IRA account NOT to exceed the $1,000 limit on unrelated biz tax. I never bought more in my taxable. Except for EVA even in the days of K1. it cleverly declares Required Expense offset by Income. Most K1’s list income as Guaranteed Income for capital. It is taxed both Federal and State as ordinary income. Even when it loses money.
        EVA went down today fractionally at $85.64. It now has pro forma dividend yield of just 4%. A few days back, BX was deemed by CNBC pundits as STRONG buy. It went down 1% alonjog with others. I just sold some to pay taxes. I sold all my remaining shares of DLNG-B. Fidelity news on DLNG suggested one of the ships own by ATCO the old Seaspan was disallowed to disembark in one of the Asian ports carrying goods to Russia.. Thanks to you and Tim and his best WEBSITE in the world, the losses are not so bad IMHO. Le Du says “as long as they pay the divvies or interests, your come is the SAME’ whenever there is a taper. I do not believe that J Powell will completely ignore the reality. the St Louis Fed was way too hawkish. the more moderate and pragmatic Minnesota Fed told CNBC that 0.5% is enough and wait and see, mostly like still raise, but where is fire? Supply shortage could be a two edge saw. Are the consumable so well to do ignoring the market news and INSIST on buying goods or services with HIGH demand and SHORTAGE? LOL.

        1. John, I love your posts because your offer a little more “Testosterone” in your income issues than most, including mine, ha. The high yielders and the IG issues do definitely run on different cycles, plus the additional economic factors that specifically effect individual HY issues. Im not in any shipping prefereds presently, but the SB, GSL, and even Seapeak issues sure have been kind to me the past year or so.
          Energy related and shipping income issues have in general been considerably more stable than the higher quality. You know the world isnt right when those have preserved capital considerably better than the rest; and IBonds come May 1, will be paying higher than all but the small sliver of high yield crap one misstep away from bankruptcy.

        2. EVA has been a tremendous stock. I bought it back in January 2016 in my tax deferred account as one of several ways to play the renewable energy sector at $17.50 a share. Auto reinvest all the dividends. Basically a set it and forget it SWAN. Always did well . But the conversion to a C-corp has sent it skyrocketing

          It is easily the largest position in my portfolio now. My basis with all the reinvested dividends is under $10 a share (thankfully in my rollover IRA).
          Only concern is given the crazy accounting with MLPs, even with my accounting/finance background I am not sure if or when I get hit with any tax consequences on this (recapture when selling MLPs in a tax deferred account) or if I luckily escaped these with the conversion to a c-corp

      2. Good chance not all the preferreds will see $27 again for reasons you say. That’s why I like to buy multiple issues from the same companies. I only buy below call though, so even if they get called, I still win. At least that’s how I see it. If they never get called, then I got all that income.

  6. Just saw that the estimate for a 75¢ incr in June is now at 94% – despite Mester saying it’s not needed, and Powell jawboning 50¢.
    Can’t find the article I saw earlier that gave some concerning info on industrial slowdown in the US and Europe- due to lack of materials. It also mentioned strong retail area demand- but is likely to go unfulfilled.
    Also, basic foodstuffs are delayed or unavailable for what we find in the groc stores- my local Trader Joe’s mentioning packaging- including glass jars, ingredients, ec, and that supplies are spotty- available one week, not the next.
    If goods are not produced, and as many workers are not needed, it looks like a recession is headed our way- along with a down market, and buying opportunities.

    1. Each fed official sharing their opinion in public drives me bananas
      They have no idea what they are doing, no idea

      1. Yup…..each person on the fed always has a completely different analysis of “the data”. This seems to be what keeps the fire sale going.

    2. The entire pasta section at Walmart here in Florida has been completely empty for 2 weeks.

  7. Not much to say. Taxes paid for. Reinvesting divs/interest in quality preferred/BBs that diversify me away from banks/insurance/financial that I always wanted but were too expensive. BC-B and DUK-A as examples. I am not always stretching for yield here and if called in 2024 I am ok with the return on those two. Increasing my dry powder as I type this and thankfully to the IRS making me hold off most purchasing for the last 3 months I did not catch a falling knife too badly.

    Everything I own is still paying. Account value dropped but nothing like some common stocks did in an aggressive portfolio or even moderate. Purchases with interest rates going up in mind several months ago are holding on strong. RMPL- as an example. Unloaded things that were low yield (less then 4.5%) ages ago except odd stuff like OCESP that I bought dirt cheap and cannot really sell easily.

    I am kind of happy with this current environment from an income generating perspective. Finally a chance to buy things yielding 6-7% without a metric ton of risk. Income can go up and paper losses may very well be temporary. Yes, one has to somewhat ignore current inflation to get some happiness from the situation but things always go in cycles. Inflation should be temporary. I am not thinking just one or two years down the road. One has to take a longer view of things if not in their active retirement stage.

    What else is there to say? Generating “decent” income was never meant to be risk free. There is always a catch. If I can sit on my rear and make 6-7% that sounds pretty good. Feels like decades past in a way. Even during the 1980s we had inflation. My whole life we have had inflation. Nothing new here. Now we actually get a chance to try to keep up with it or possibly beat it over the next several years if we purchase the correct things and the world settles down.

  8. Not surprising at all. the market today is just giving up the gains the market had earlier this week

    I have a number of common stocks – all dividend payors. The daily fluctuations are mainly noise for most of them. I own them for their dividends. That said, I traded out of some big winners earlier this week (part of my ATO and DFS and all of GD) and redeployed some of that legging into some beaten up dividend payors (WHR, SWK, CMI. EKLF. OMF)

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