I see the equity futures are up near 2% today–which means absolutely nothing except traders love the movements up and down. I think we all know by now that the coronavirus is going to mean the U.S. economy is going to take a hit–exactly when and how badly is the question.
The Fed went into panic mode yesterday with the 1/2% Fed Funds cut–I expected it, but think in general it is ‘balony’ (a technical term)–we already had low rates with a slowly softening economy and if someone believes that this will ‘juice’ the economy they haven’t been paying attention for the last 5 years.
Here is what I believe. I believe that we are slowly sinking toward recession. The corona virus will just give us that last push over the edge of the cliff. This could take 1-2 quarters to play out–and we will watch for further details, but you know there are more than 169 cases of the virus in the U.S. and that we will see widespread school closings and other business closings. The travel and lodging industry are going to be slapped pretty hard–and overall spillover affects will be pretty damaging.
With the above in mind I am continuing to watch the high quality, low coupon preferreds and baby bonds issues–i.e. CEF preferreds and utilities. I think in a few years we will look back and say ‘I wish I could get a safe 4-5% coupon’–well maybe the time to get some of them is now.
I bought some of the ELJ Entergy 5.25% baby bond last week around $25.00. This should be a good holding, but it is callable now so may not be around long. What I would like to have is the same coupon with at least 3-5 years until 1st call date–to try to assure myself I have locked in that rate for the foreseeable future with a quality company.