This Dangerous Market Now Off about 5% From Highs

The current stock market is about as dangerous as any we have had in the last year. MLP’s are bouncing up and down–with no particular area safe (although obviously the usptream MLPs are the most dangerous). It really doesn’t matter whether you own the ‘best in class’ issues or the real junk–losing 10% in a given day is happening to issues of all sorts.  The pain thus far has been real with just a 5% correction–and it wouldn’t be a surprise to us to see a total 10-20% Dow correction.

Of course trying to choose common stocks to buy is like being in a mine field with issues getting blown up right and left–recently the biotechs have taken a well deserved pounding after rising to crazy prices.

Quality preferred stocks and exchange traded debt have held up pretty well, but why shouldn’t they as interest rates have hardly moved.  On the other hand the pure junk preferreds have been getting what they mostly deserve–a shellacking.  Oil related issues, of course, have been pounded on bad sector fundamentals, while others such as shipping preferreds have been hit because of the ‘percention’ of poor quality even though many of the companies have reasonable fundamentals.  Remember–when a segment is sold off time and time again there doesn’t have to be a sound fundamental reason for the selloff. Brad Thomas, on Seeking Alpha, has argued continually that the REIT sector didn’t deserve the share price losses that have been occurring much of this year because the fundamentals are sound.  We can tell you that it doesn’t matter, selling begets selling, and none of us will be able to change that fact. After 45 years of investing we accept this as a truism.

Tomorrow we have the BLS employment numbers–a strong (or super strong) number will send interest rates shooting higher as Yellen would have the last needed bullet in her 6 shooter to raise rates next month. A super weak number will send stocks and bonds higher, although honestly we would be surprised to see strong gains last more than a day or two.

With the weakness in markets the 2015 Blended Income Portfolio is struggling to hold gains–now up just 2.55% YTD. Still respectable compared to almost every other portfolio. On the other hand the 2014/2015 Short/Medium Duration Portfolio has performed admirably–up 5.75% since last October. We have personally moved our own holdings to be nearly identical to this portfolio–except we have maintained a position in some REIT’s such as Independence Realty Trust (ticker:IRT) and Bluerock Residential Growth (ticker:BRG) for the long term.

We are holding plenty of ‘dry powder’ in all portfolios–we would be a buyer of high quality debt issues if we were to get a panic selloff at any time–in particular like those experienced in 2009 and to a lesser degree in 2011 and 2013–but quality only, no junk.