Up, Down, Up, Down. Fed Governors Shut Up!!
By: Tim McPartland,
Well today was the response for yesterday–1 day way down-the next way up. It never hurts to have the Fed Chairwomen ‘pumping’ the action. It is bad enough that the Fed pushes markets around with their silly Fed meeting ‘statements’–it is worse when the Fed Chairwomen has lunch with a bunch of loose lipped Senators. Over a longer term it doesn’t really matter as markets will eventually go where they are going to go, but the behavior of Yellen and all the Fed governors is generally unacceptable (in our mind) as they knowingly move markets every week. What crap.
We garnered good gains today all around. With the never ending lowering of interest rates even the ultra conservative 2014/2015 Short/Medium Duration Income Portfolio has marched higher. Recall we built this portfolio to model a very conservative portfolio with exchange traded debt and term preferred issues to simply be able to garner a pretty good income (6.7% at inception) without much volatility. With the grinding lower interest rates this model is up 2.78% in 3.5 months. One can’t complain, but almost half of that gain is a capital gain which is not part of the plan. Oh well.
We note that after a number of new issues in the last 3 weeks we might see announcements of a slew of new issues hit the market again soon–but we haven’t seen anything this week. In the past when we got big downward moves in rates many companies would ‘refi’ their preferreds, but this time is different. While there are over 100 regular preferred issues now redeemable it isn’t happening–this might say something about the ability of low quality issuers to refi at favorable terms.
We were interested to see some of the mega oil and gas companies slash their capex plans in order to maintain relatively generous dividends. In particular we are watching Royal Dutch Shell (ticker:RDS-B) which now has a current yield of 5.3%. If we had any fundamental reason to believe that energy prices were near a bottom we would buy some of this issue–but it is too soon and thus we wait (can you tell we are antsy to buy some energy?).
Well we look forward to more silliness tomorrow, but as we said yesterday we just hope that traders keep markets under control. With these large up and down moves there is always a risk that a fat finger hits the wrong button and we plunge 1000 Dow points. We have no doubt that one of these ‘errors’ will come one day.