Complacency Reigns – To the Moon
By: Tim McPartland,
Another 75 Dow point up day–just the normal day. Forget about the crappy ‘global’ economic situation–Europe and Asia, forget about any global tensions–Russia/Ukraine, Gaza/Israel and Iraq/Syria ISIS. Just be happy.
But seriously, with everything that is happening globally even we are complacent with income securities. It would seem that only a ‘black swan’ event could derail the low interest rate environment. Europe and Japan are now talking QE (little late to the party I would say) and we really believe that Yellen will be reluctant to hurry into any interest rate bump–and she should be–if you want to toss the U.S. economy back into recession just help interest rates shoot higher by 1%. The housing market is lukewarm (except if you live in a larger city you might believe that housing is booming), at best and housing in many areas is bought only with the assistance of a FHA 2.5% down loan (these will be the first to be foreclosed when the next recession hits). Auto sales have been great, but we are questioning the quality of the loans being made to auto buyers. We could go on and on–but what would be accomplished.
As we noted last week you can only call bullshit on the economic reports for so long before accepting that most reports now say our economy is improving. We accept (kind of) that there is improvement and for now are simply willing to ‘ride the wave’–what choice do we have–you have to be in the game to have a chance at winning.
We have been reseaching another security that is a fund (closed end fund) that contains mostly (75%) floating rate preferreds and pays a great 8.3% dividend (monthly). As most of you know we are not great fans of CEF’s (for no other reason than we aren’t found of leveraged vehicles), but we have an interest in this CEF. The closed end fund is the First Trust Intermediate Duration Preferred and Income Fund (ticker:FPF). We have not finished reading all available information yet, but like what little we have read so far. Thisnewer Seeking Alpha article (free registration required) covers the details to some degree. Like the Variable Rate Preferred Portfolio ETF (ticker:VRP) that we wrote about last week the premise of buying floating rate securities is to remove some of the interest rate risk from the investment—the problem we have is we are not sure how much of the risk will be removed. We purchased some VRP so we can closely follow the reaction to changes in interest rates. We will continue some due diligence and may make a purchase to continue our move toward reduced interest rate risk in the portfolio.