Markets Move Higher – What to Do?
By: Tim McPartland,
It is remarkable how the equity markets have moved higher in the last 2 days–goes to show what ’emotions’ do to prices. Basically nothing has changed since last week, but as we mentioned ‘time’ lowers visibility of issues such as ebola and with no new cases in the U.S. the perception is that it has gone away. Perception is reality.
For those looking for yields without a large concern for their capital the oil E&P MLP’s presented huge opportunities last week. While oil prices have bounced back a bit we still view it as very dangerous. The bounceback in crude has been modest and prices remain only $2.50/barrel above $80 (a price that is considered by some to be a very important support level). No doubt that as prices fall the MLP’s will at some point begin to reduce distributions–but each company is different based upon the hedges they have in place–as the hedges expire and new future sales are made they will be at lower and lower prices (if crude stays priced at low levels). We can find any number of articles that outline the case for a fall into the $70’s–and conversely articles that outline the case for higher prices. We will get a clue to inventory builds in the next hour or so when the EIA crude oil weekly inventory report is released.
Preferred stocks and exchange traded debt remain a couple percent below their high for the year–MLP’s still 6-7% below their highs. REIT’s are off 2-3% from the yearly high.
We are content to hold now awaiting new issuance of Term Preferred or exchange traded debt issues with shorter durations than ‘perpetual’. With our model up 10% for the year we are not motivated to go out on the limb for ‘perpetuals’. Remember, personally, we try to preserve capital–those that are trying to boost their yield are able to do so in these volitile markets–while risking capital in the future when/if interest rates move higher.
For those with low risk tolerance theShort/Medium Duration Income Model has moved only in a range of +/- 1/4% over the last week while paying a 6.68% current yield.