REIT’s and MLP’s Power to New Highs
By: Tim McPartland,
Both REIT’s and MLP’s powered to new highs today in a move that to us becomes a bit scarier each day–when you reach the point that it is an ‘expectation’ that each day is a 40-100 point upward DJIA move and every dip is to be bought with no risk that markets will go down it is time to be worried. But we always worry–doesn’t matter if we are in the best of times or the worst of times–we worry. No need to worry tomorrow though as Yellen speaks and she will spread fairy dust for all to consume.
This week we have made a couple tweaks in the model. We purchased a small position in the Powershares Variable Rate Preferred Portfolio (ticker:VRP). This is the first time that we have purchased a security that yields just a low 5.25%–the position is small and not of consequence in the big picture. You can read about VRP here. Additionally we sold our TCF 7.25% Non Cumulative preferred. This was a low yielder and the move was just one more step in our strategy to unload some perpetual preferreds in exchange for issues with shorter duration–so far we have been making this move by just a percent or two each week, but with interest rates remaining at low levels there has been no harm done. For those that don’t recall we have in anticipation of higher rates been slowly migrating to issues with shorter durations, Term Preferreds or ETD with 5-10 years to maturity, to try to remove future interest rate risk–at least to some degree.
The model is at 10.45% YTD and preferreds have been steady all week–maybe we have the highs in for preferreds–no one knows, but as long as rates move slowly if they do go up the damage will be minimal.
We will do some further review of next weeks economic calendar in a day or 2. After todays strong PMI, Leading Indicators and Philly Fed report could we be on the verge of a upward move in rates? Will dramatic demand hold interest rates down? Will there be an international event that sends the world into U.S. Treasuries? We tend to believe rates have further to fall—but you can only deny the good economy for so long and then we have to accept the inevitable.