MLP’s, REIT’s and Utilities Slammed

Every week for the last 4 weeks we have written about the coming recession in Asia and Europe as well as what we believed was a weaker housing market than was being perceived by the ‘crowd’.  Only today did market decide to start worrying about the obvious.  This, of course, is why markets are unpredictable—good is bad and bad is good—until it isn’t and there is no way to predict the silliness of Wall Street.

Today interest rates fell, but in addition most interest rate sensitive stock prices fell as well.  We are at a point in time (and maybe it is just a one or 2 day event) where rates can fall, but REIT and Utility shares fall as well as the perceived risk to profits and dividends is greater than the potential benefit from lower interest rates.  MLP’s and energy related common stocks got creamed as the price of crude continues to fall rather sharply.

NOW is a good time to keep a little dry powder–in fact maybe raise some cash if you have some capital gains that you would like to book.   We sold our Vanguard Natural Resources (ticker:VNR) last Friday which brings out cash position to 10.22%–the highest level of cash we have had for over a year. We are happy with our cash level and may even raise a bit more.  We see bargains being created and you can see them easily each day if you peruse the MLP and REIT pages you will see those dropping by 3% or more highlighted in blue.–today there were 11 MLP’s dropping more than 3% as well as 11 REIT’s. This is the largest number of 3% drops we have seen this year.

One particular issue we like is Independence Realty Trust (ticker:IRT), an apartment REIT which we like and have owned–it fell 4.58% today and has a current yield of 7.5%.  If it drops a bit more we will add some more to the model portfolio (we have 500 shares and will likely double the position).  We liquidated our personal position a couple weeks ago for a tidy capital gain, but will probably buy some back soon.

We will not be buying MLP’s unless they fall much further–if we have continued softening of the global economy energy MLP’s could be potentially crushed.