Plenty to Worry About, But Stable Markets Continue

The last week has seen plenty of news out there that could rile the markets, both stocks and bonds, but all in all income securities are hanging in there. The 10 year treasury yield has moved in a very nice manner–very friendly to preferred stocks–we hope that rate movements remain tame (we don’t care if they go up–we just hope it is 3, 4 or 5 basis points at a pop–not 20 or 30 basis points).

We have seen the REITs get slammed a few times, yet as a whole, they remain just 5% off of their 52 week high–today they were up 3/4%. As we mentioned last week we were going to consider selling some of our REITs, but a note from Howard P made us think twice. There is no use paying a commission on a sale when we have nowhere else to go with the funds at this time and REITs, as a group, seem to be under only minor amounts of pressure. For those that have read our writings you know that our preference is to not over trade securities. Unfortunately last year we were more active than we really wanted to be as you can see on the bottom of the 2014 Model Portfolio – Blended Income. In the case of the 2014 model we believe it was absolutely correct to move from the MLPs as well as from a good deal of the perpetual preferreds. Of course we all know what happened with the MLPs and we believe that the perpetual preferreds are likely to take some level of hit if interst rates moves higher. After a couple of months we are very happy that most of the activity in the 2015 Model Portfolio – Blended Income has been on the buy side, using available cash.

In the weeks ahead we will be looking for more income issues to buy. We are still very skeptical of buying any MLPs–there simply is no fundamental data that says prices of crude are going higher any time soon. While rig counts have come down almost exactly as we thought they would and now are 30% under a year ago, production remains strong and the 7 million barrel inventory build served to reaffirm our thoughts on price.  Of course there are always geopolitical concerns in the mideast–but when haven’t there been these concerns in the last 50 years? For whatever reason the new issue market has been pretty quiet (preferreds and debt issues) so one must remain patient.

Just a note on Tortoise Energy Infrastructure 4.37% preferreds (ticker:TYG-B) which we had considered a ‘steal’ 14 months ago and we ‘pounded the table’ on it. When we wrote on theissue on Seeking Alpha on 12/29/2013 the shares were trading at $8.32 (a current yield at that time of 5.23%)–for a AA rated issue. Now shares are trading over $10–one heck of a gain in 14 months for a AA rated issue.  For those considering a buy of this issue they should be aware that they are redeemable starting on 12/31/2015 (mandatory redemption in 2027) for $10.10 ($10 plus a 1% premium). Because of this potential redemption one should not pay more than $10 or $10.10/share unless you are willing to accept less than the coupon (4.37%).