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!!
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.
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.
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.