Stock Market Takes No Prisoners Today

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Today the stock market took no prisoners during the late day drop. While yesterday MLP’s and REIT’s escaped the carnage that wasn’t the cae today.

MLP’s did their little jump yesterday, before getting spanked hard today. As we had mentioned (a hundred times I think) the bottom fishers have been way too early as there is no fundamental information indicating that energy prices should jump anytime soon–but if they want to speculate it is ok with us. If we look at a smaller upstream company like Mid-Con Energy (ticker:MCEP) it has been moving up or down 5-10% everyday for a week or more–maybe jerked around by daytraders or maybe bottom fishers keep thinking ‘the bottom is in’. The bottom in the share prices will likely come before the bottom in energy prices–but who can reasonably know which day that is going to be?  Not us.

REIT’s had been so strong that it was only a matter of time before they took a little drubbing–and they did today–but it was not severe. We don’t think it is a great time to be establishing new positions in REIT’s-they are bound to set back sooner or later in a meaningful way which may be a better entry point. We have done very well in REITs and sold some today locking in great capital gains (we wrote about this last night).

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Unlike yesterday models took a tiny hit today–down about 1/3%–not a big deal.

A couple areas of note from todays financial news. The Fed statement today told us nothing really new–they certainly did not back off their misguided threat to raise rates. While there is no way the global economy can stand higher rates (even though they are short term rates) we are now starting to believe that they will in fact raise them up during the 3rd quarter. We didn’t believe they would–but now we are starting to think they maybe aren’t too bright. It only confirms our slow move to shorter duration instruments which we will continue. Depending on the mood of the markets at that time those holding CEF’s and perpetual preferreds may take a severe beating in the form of panic selling. While this won’t be warranted it could happen and investors should be aware of the fire they are playing with by holding too many of these types of investments. Buyer beware!!

The other news item from today was another massive build in crude oil inventories. As we had mentiond last week the inventories of refined fuels had risen too high and the refineries were cutting back on refining to let inventories come down and in fact we are seeing refined inventories come down. We would expect that the huge crude builds we have seen in the last 3 weeks will moderate from here–although without reduced production (which we haven’t seen yet) producers may overrun the refiners again–we will just have to wait and see.

We see no obvious portfolio actions (after our REIT sales today) that we will take for the balance of this week.

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