Most Income Securities Bounce Higher

Today was a nice day for income securities for the most part.  Preferreds, exchange traded debt, REITs and utilities all bounced nicely by 1/2% or so. MLPs didn’t participate in the rally–mostly just hanging around yesterdays close in spite of slightly higher crude oil prices.

We are now starting to seriously question REITs and utilities as they have been full on participants in the market rally for months and months.  While we don’t have time to drill down into individual issues our gut tells us that investors need to use extreme caution when investing in these sectors at this time.

Speaking of utilities it has been a long time since we have thought utilities offered much to the income investor in way of current yield since the majority of the issues are in the 2-4% yield range, but the capital gains in many of the issues have certainly made it worthwhile for individual stock pickers.  For the first time in a year we picked up 1 utility issue–Artesian Resources Corp (ticker:ARTNA) in the model and personal accounts.  While the current yield is just 3.9% we are pretty well sold on the concept of water and wastewater treatment utilities.  ARTNA serves Delaware and Maryland with mostly tap water–although recently they have begun to move into the wastewater treatment area.  These are small towns that ARTNA serves and anyone that has lived in a small town knows that publicly owned water and sewer treatment are a real problem at this point in time.  In Minnesota the state is forcing some very high cost upgrades to these systems that small towns are just barely able to afford–the capital costs are relatively huge if you are a town of 2,000 or 3,000 folks.  This is going on nationwide and we believe on a very long term basis the water utilities will almost be able to grow as much as they want as the small towns turn over ownership to others who are more able to raise capital for new projects.

Back to the general market conditions.  Our models picked up good ground today wiping out the lions share of losses from earlier this week. This is another hopeful sign to us that at this point in time we have about the right blend of investment sectors–we hope this remains the case for the month (or year), but realistically we know that one is likely to make missteps in the market.  Missteps are ok if one learns from them and trys to not repeat the same error time and time again.

Today we got a strong ADP employment report of around 240,000 new jobs and we are expecting about the same on Friday (when the government stats are released)–guess it doesn’t really matter though as interest rates remained under 2% in spite of the job gains.

Crude oil inventories came in down 3.1 million barrels today, but supplies of gasoline and other products spiked way up. Crude production was over 9 million barrels/day last week–a very large amount and we would think the peak of production–but we shall see.  Likely there is more turmoil to come to these markets since there is no material data showing overall reductions in any volumes yet.

We watch and wait