Well markets have pretty well ‘melted up’ this morning–obviously not a sell the news moment—maybe a bit of a over-reaction. Of course yesterday after the 50 basis point rate cut announcement equities moved sharply higher before taking a tumble so no one can predict how this day (and week) will end up.
Interest rates–the 10 year treasury are up around 14 basis points in the last 48 hours and up 9 basis points from the low point yesterday—seems a bit odd, but not necessarily surprising. Short dated treasuries (1 month, 3 month etc) have moved lower in yield by 15-20 basis points–right about where one would think they would move with the fed funds rate cut.
One needs to ponder these rate moves for a bit before reacting—I am not doing anything willy-nilly and will let things shake out a bit.
I did sell 75% of my ‘sock drawer’ holding of WR Berkley 5.75% baby bonds (WRB-E). It was a rare case of a sock drawer sale–only occurring when pricing is irrationally higher. At $25.50 the premium was just too good to turn down. I may re-enter if shares fall back into the $24’s.
Another irrational holding in which I hold an overweight position in is the XAI Octagon 6.50% term preferred (XFLT-A) which is now trading at $25.22. Too high for an unrated issue that will mature in 18 months. Not sure where I would sell it–$25.30 maybe–we’ll see. I would re-enter under $25.
Well let’s see how this day plays out!!
Thank you all who responded. Have now generated a list from Yahoo Finance and Quantum, and made small purchase of KTN.
If you think of this in macro terms labor costs going down a bit temporarily (not permanently) is good for the economy. I think a lot of it was dead weight. Companies needed bodies once and they got bodies. Well bodies don’t necessarily make good employees. Some advance within and others need to look elsewhere. There were also jobs that were based on ideologies that were paying crazy duckets. When the pendulum turned the other way on these ideologies, they gotta go. M&A has also been robust, and where do they always find synergies it’s in SG&A. I always wondered how some of these wacky tech jobs paid so much. Well those were finally cut too.
The reason I say this is I thought it would be near impossible to bring down wages. Usually when I got a raise, I wasn’t in a big hurry to work for “less”. However, when times are tough you may have to flex a bit.
The reason I say this is IMHO you can continuously work on efficiencies to bring raw materials and finished goods down in price. When supply and demand market stabilize, it is much easier to get costs down. Usually automation and access to capital can bring CPU down. Running a business with half the labor you need or half the raw materials/FG’s you need just doesn’t work.
Mr. Powell might be underselling how bad employment numbers are getting. I am now hearing in polite chatting about hours being cut going into Xmas. Let’s face it, if management can sail nicely into the new year then he probably gets a NICE bonus. Roll the budget forward to 2025 and now we start to selectively rehire.
AI is going to put a lot of people out of jobs eventually or at the minimum make employees much more efficient that you don’t need as many. A lot of these jobs will replace good paying white collar jobs ie banker, analyst, doctor, lawyer, financial planner. Nothing is going to stop this now.
I have said this before, but I think the boogieman is stagflation. Prices rise faster than income. This is going to make a lot of people pissed off. The younger folks were super pissed when the McDs hammys went to $20 a human. This older guy says meh..go down to the country store and get more than one meal out with leftovers too and maybe even some change.
My neighbor is a property manager. He is seeing friends get together and buy a home in Barflandia. It is ridiculously cost prohibitive for what you get. Starting to put the 5 story apartments that have ten buildings per location it seems like on a couple of football fields in suburbia. People enjoy paying for urban sprawl and decay here.
Rant over….behind enemy lines NWGG
YMMV
The economy is slowing down. The news generated will cause it to even slow more as people reading and watching will hesitate to invest in the business or make large purchases. Transportation is a leading indicator.
FedEx (NYSE:FDX) shares continue to lose ground as disappointing fiscal Q1 results coupled with downbeat guidance drives shares to a 12-week low on Friday and is reverberating through the transportation/delivery/logistics sector.
The company blamed soft demand for premium delivery for the outcome, amplified by a challenging macro environment evidenced by the 50-basis point cut in interest rates this week.
Fedex stock just dropped $42.00 so far today. This will make it more difficult for them to sell their LTL logistics division.
“The magnitude of the Fed rate cuts [on Wednesday] signals the weakness of the current environment,” CEO Raj Subramaniam said on the earnings call, adding that the company is “not assuming a significant comeback on the industrial environment in the rest of this calendar year.”
During FedEx’s (FDX) earnings call (transcript), management said FQ1 results were negatively affected by soft revenue trends, with a global decline in priority volume and growth in deferred volume. “We were expecting to achieve higher revenue and profit flow-through from U.S. premium services in Q1, which did not materialize,” noted CFO John Dietrich.
World wide slowdown is going to affect the US
Fedex, UPS, et al. will see further pressure because the postal service announced it is terminating discounts to those “aggregators” who using USPS for the “last mile” delivery. Article I saw said it would save USPS $30B over 10 years (IIRC).
Hope they go after amazon too, but I haven’t seen anything about it.
Also wish they would come up with a way to go after them for rural deliveries. Amazon does urban deliveries, but hands most of the rural deliveries off to USPS – which are the most expensive routes. USPS carrying the cost for Mr. Bezos…
I’ll give you something to think about!!!!!!
Check out the discounts to NAV of any bond CEF’s. Many have closed from -8 to -12% ALL THE WAY UP TO PAR!
I want income. If I sell I have cash. I can stick it in MMF or short term ETFs like SGOV but those rates will just keep falling it appears. Otherwise anything else paying a decent return is junkier. High quality is going right up in price daily. Why do I want to sell so quickly when we can finally see the end of the tunnel? The wind at our backs? I am letting it ride. 5.70-6% IG preferred, in several months, may be gone and look mighty tasty in retrospect.
I’m with you on that FC. I locked up a lot of duration so I’m content to wait and just collect dividend/interest payments.
For those with too much cash, it may be good to keep an eye on medium duration issues like TVC, TVE, KTH, KTN and EP-C to see if you can find a good entry point.
Agree.
Where did you come across KTH and KTN???
Though new here have not seen coRTS discussed or listed anywhere on site?
P.S. By the way this why suggested an ongoing thread just for Buys and Sells.
I can’t be 100% sure, but I think I heard about KTH/KTN from a post from Gridbird (the man, the myth, the legend).
TVC has had some shares traded for $23.05 today. That’s a YTM of around 4.4%. It matures on 6/1/2028 and is rated Aaa/AA+.
KTH has an ask of $28.89. I computed a stripped YTM of around 6.0% at that price.
Tacitus I found most of these another way. Look on Yahoo finance and if you type in one a list will appear on the right hand side of similar stocks. You can keep going down the rabbit hole and clicking on another one and more will appear. These are slowly fading out and I don’t think they are being created anymore.
I wouldn’t consider your method very accurate, Charles but you never know what kind of gem you might come up with if you start looking at a computer generated list that has no clue how it believes what it’s generating compares…. As an example it says The Taiwan Fund is similar to KTH if you put KTH in… I dare you to tell me how they are similar…
Here’s another idea for you, Tacitus… KTH and KTN are considered to be “third party trust preferred securities,” aka structured products created in the secondary market… You’re familiar with quantumonline, right? Using QOL, you can search for third party trust preferred securities. It’s a little bit confusing because if you do it under “IncomeTables,” for some reason you won’t get a complete list… BUT if you search under the next column to the right, “Income Lists” you generate a list of 22 securities. That one’s pretty complete I think… And of course, within the description of each you most likely will find a link to a prospectus… If you really want to get down in the weeds on any one of these, that’s where you’ll ultimately want to end up… Hope this helps
Great tips on an old favorite …. Quantum OnLine
Dick I think we might have similar strategies. There has been a lot of discussion on here about what will happen with fixed preferred and floating if Fed rates drop. I decided to go with buying a few preferred with reset dates 2 to 5 yrs down the road. I am willing to take a lower yield now and hoping that when they reset in the next few years they will lock in higher rates.
Fc;
I agree. I have several issues that have a capital gain equal to two years of dividends, but wanting income I haven’t pulled the trigger on them. I have been considering maybe putting stop loss on a couple of the issues just in case of a major down market.
Tim said “One needs to ponder these rate moves for a bit before reacting—I am not doing anything willy-nilly and will let things shake out a bit.”
Yes it’s hard not to feel good about the gains in the last few months and that can lead to taking on more risk hoping for more large gains.
The up trend may or may not be over. Now I’m concerned about holding on to what I have gained while still allowing for some future gains. The future seems more cloudy to me than it did a few months ago. I don’t like stop loss sells but I’m considering some now.
Was in LXP-C for 2 1/2 years at 45.34 basis – it just hit my GTC order and I got 52.94 for it = $7.50-ish appreciation and $8+ in divvy – roughly 33%. crazy….now to find somewhere for the freed up funds.
XFLT-A looks about fairly priced if you considered accrued divvy…
yazzer–agree it is fair with the accrued dividend–but much higher than a week or two ago and there has been no particular reason to move higher (outside of supply and demand and we know folks are out there buying).
What to think? Indeed– euphoria:
Since lows on 9/11, Dow is up 5%, SPY is up 6% (7 trading days- almost 1%/day!!), and since the 6th, Nas up over 8% .
Party on.
Gary–party on indeed!!
Look at the spread between the 4.xx% JPM perpetual preferred stocks and the
30 year Treasury — considerably less than 100 basis points.
I’m a seller. Despite being mistakenly too conservative and chronically underinvested, my account values are now almost 50% higher than I ever thought possible. With spreads so narrow indicative of complacency, I’m happy to own short duration Treasury securities. I just hope I don’t get Zirped, but the action in longer dated Treasury Notes and Bonds belies that outcome.
af, like Mr conservative who still has 6yrs to go and a few others I am going to stay the course. My wife’s account is up 10% since April including dividends and that is even with her pulling out 50% of the income generated. I can rearrange the deck chairs but it’s difficult if I do to find a replacement that gives the same income and similar safety. I just have to be ready if anything changes.
I excluded the first part of the year as April was when we moved the account to Fido and I had a large one time gain one one common stock.
I’m even selling some of my equities that I have held for more than 40 years. I just want to be sure to thank all generations succeeding the Baby Boomers for assuming the $35+ trillion debt that made my investment returns possible.
af, nothing wrong with locking in capitol gains and stashing in a Treasury or MM fund or CD’s if you can live off the income.
The Fed notes show that they are going to continue to lower rates all throughout to end of 2025. So, I wont be a seller as that means that my 5% ish coupons that are under par are going to continue to climb, and all I have to do is just sit. The 6% coupons are now at par or over.
President election years are also have been good for the market as well.
Market optimism along with investment firms and folks have been getting back into the investment game after sitting on the sidelines/cd’s/mm’s. They probably wont be pulling out, as they have just got in.
I cant say what the overall market is going to do, but as I noted at the start of the year, this is going to be a great year for fixed perpetual low coupon holders vs floating rates, and that is where I put a good chunk of the money at.
I am also partial to sitting because I dont use the income from investments, and also the current income generated from the investments is well over my current salary.
I was having the discussion about account values with my wife last night.
Our accounts are up bigly, but how much are the REALLY worth?
I ran our current values and adjusted them for 10 years of inflation. Did the same for the year end values for the last 10 years.
Wow, suddenly they don’t look as good if you look at the “real” value of those accounts (buying power). Still up, but not nearly as much as it might appear just looking at the raw numbers.
So, when the politicians brag about how the inflation rate is flattening, it isn’t going to make up for the huge inflation hits we have taken (especially in the last 4 years).
Private, I am taking a line from your playbook. I have an appointment with a financial planner and asset management firm in a couple weeks. Going to be checking them out to see if they meet my needs just as I know they will be evaluating me to see if they want me as a client.
Starting to plan now for if I no longer want to manage our money or am not able. My wife has no interest or skills to do this. I dangled the prospect of one of our medium sized accounts for them to manage and they seem interested.
I got a little entertainment listening to this younger guy talk about how the S&P 500 has had great returns and looking at the growth of the market and the potential of different sections etc. over the phone.
With being in and out of the market for almost 45 yrs I think I have seen enough to know what I need out of an asset manager. We will see if his company fits the bill. The other part of their service of financial planning is more of what I am interested in.
Thought it best to get an asset manager now so I can judge their ability to handle the market over the next few years. If not I will try another one. At this point in the game thinking more about making sure my wife is taken care of.
Tim, dividend shoppers could be buying into the next ex- div date for 10/15
If you bought it at the end of August / 1st of Sept. you could already flip it for the next divy. But who’s to say it might not go even higher with investors bidding up prices thinking they are entering a yield desert in the coming 6 months?
What you and AJ have said about Long term rates is the boogeyman that may show up in the future.
Several banks have announced a cut in their prime rate which probably means they are paying less to depositors but they need not to lower their long term rates to be able to make money. If they do, they could be stuck with the same problem they already went through of holding long term low rate loans on the books.
Borrowers for large purchases like homes are holding off hoping for rates to come down. They may be disappointed. People who bought into building suppliers and manufacturers and MREIT’s could be getting a lump of coal in the Xmas stocking.
ZIONL went to $28.35 a share today. Is this the Twilight Zone?
Sorry one more….zombie Silvergate Pfd
SIPCL flashed crashed to .02 cents a few weeks back. Whiskey Tango Foxtrot!
Symbol has changed (again) to SICLQ.
Oops s/b NWGG….doh
I still have the zombie SI-A / SICLQ. Are they ever going to close it out? Tempting to bail out at $14 but I keep hearing it will be worth more when settled, which almost never happens to preferreds in a bankruptcy settlement. Anybody have updates about that?
@mg Silvergate
We are in the same leaky raft on this one. When Sgate first went down, I was under the impression that they had sufficient assets to wind down and pay b/h, pref/h, and depositors.
Well uncle sugar came in and give them a giant fine. So did uncle sugar take the cake away? I dunno.
I got just a few more shares left. No biggie for me to wait and see. If I had a larger position I would probably exit at $15 or more on maybe half the position.
Fat fingers I think.
I think one – just one – of the Bloomberg pundits was spot on yesterday, commenting on the anemic reaction to the big rate cut. He thought the market had priced in too much future easing. Wall Street always wants more, more , he said. It was disappointed with the press conference which tamped down expectations.
Some of the action today confirms it. Long rates went up, as someone complained on Bloomberg. A rising market but quite a few regulated utilities showing red. XLU, VPU, SO, D, DUK, NEE, AEP Utes, which had already risen sharply, were touted as rate-cut winners. Wells Fargo downgraded utilities today.
Sentiment. Adding tech. Neutral on energy. Likely to exit floaters trading north of 25. Big yields but bigger call risk as money gets cheap. JMO. DYODD.
Bear, I heard on KCBS news so pundit said that some people are still expecting 5 more rate cuts! My first reaction was what world are they living in? If those clueless investors are disappointed I would expect a sell off in some of the preferred that have run up in price so quickly the past few months.
Tim,
This look like yield curve control since the economy as Powell admits is still doing better than OK and he couldn’t respond to questions in his presser on why he’s cutting 50bp if the economy is still good. Unemployment claims this morning showed a decline so why such a big cut in this environment? A big reason to do YCC is to lower the interest expense of the massive debt . Too bad for Powell that the 10 year rate went up as the bond market understands the major issue, the huge deficits that need to be funded with more debt with no end in sight. Powel can cut short term rates but the buyers of US debt are buying what he’s selling.
We may well get a retrace of the recent large moves up in our preferreds and get a chance to reload or add at lower prices.
AJ—a large chunk of my XAI Floating Rate 6.5% is now gone at 25.30 and I am looking to reload.
I am very curious to how markets are going to react in the months/years ahead to this growing debt situation–it won’t end well but folks have been saying that for decades. Interesting times ahead.
Well said AJ.
AJ-
YCC usually refers to the long end where the Fed has less influence. Treasury, OTOH, can keep pressure on long rates by issuing more bills and limiting the supply of coupons. Bill issuance adds to liquidity and supports financial assets.
The net result of Fed QT and Treasury largesse has been to stabilize liquidity. The reduction in the size of QT means the Fed is a buyer when rolloff is greater than the QT limit. Many expect QT to end next year.