Adjusting our View on Only Purchasing Short and Medium Duration Securities

We have focused almost exclusively on the purchase of short and medium duration securities (debt and term preferreds) in the last year as we expected some level of interest rate increases from the FED. We are now shifting away from this as our primary focus–our economic viewpoint is tilted negatively and more and more we are thinking that Yellen will have no economic basis for raising rates as inflation remains tame. The global economy remains  tepid everywhere.

We are now adjusting our view – we would like a rate hike by the FED–if for no other reason than to show it can be done without massive harm–BUT even if we were to get a 25 basis point hike in the near future (6 months) it would do little harm to income securities.  Maybe there would be a short term negative reaction, but it likely would not have lasting affects.  Any hike in rates would be a 1 and done (at least for a while) as we can see no real chance of a global growth explosion which would warrant higher rates.

With our adjusted view we will be adding a couple perpetual preferreds yet this week to the portfolio.  We have plenty of cash available and while we won’t get carried away buying it no longer makes sense to wait for interest rate hikes before getting cash deployed.