Weary Investors Hoping for a Bounce

We sense that investors are getting weary of the massive daily swings such as those we had today and we believe that we will see a bounce of sorts in equities and interest rates tomorrow and/or Friday.

It was breathtaking to watch the 10 year treasury trade down to 1.85% today and then bounce back up to close at 2.09%.  Similarly, the MLP’s were getting another shellacking today before turning on a dime when oil headed higher.  It is time for crude oil prices to firm up which will be one of the keys to stabilizing these markets.  All bets are off if more ebola cases appear in the U.S.

Today we sold Costamare and Seaspan preferreds as we previously mentioned we would do.  We do not think these container ship owners are in financial trouble at this point in time, BUT if we have a soft economy 6 months out there simply will be a massive drop in the day rates these companies will be able to secure as contracts come up for renewal.  As Howard, one of our long time readers, mentioned–if Box Ships goes broke there will be more available freight for the remaining companies.  Unfortunately there are so many ‘new builds’ on order that the capacity will continue to grow regardless of how many owners are in the game.  The point in selling these high yield issues at this point in time is simply one of getting out before the crowd rushes the door sometime in the future.

The 2014 model has continued to trend lower–now standing at a 8.59% gain YTD.  All in all we are happy with this performance because we know there are plenty of income investors that have no gains for the year (and some that have losses).  We are tilting toward quality issues to hold instead of junk.  Quality is outperforming junk and it appears wise to hold quality in these times of uncertainty.

Many investors that are focused on and purchasing junkier issues are getting many issues to select from at this time–additionally these yield focused folks have taken a huge pounding to their net asset value.   Some who thought they were yield focused are likely questioning the wisdom of watching their NAV evaporate–but this type of market will clarify their personal desire to build yield by the amount of pain it creates and how well they are sleeping at night.  With over 40 years of investing we already know we personally do not tolerate losses well—any loss–thus we look to avoid capital losses.  We will take a reduced yield if it means we can preserve capital.  Others will take the ‘hit’ to capital in order to build future yields.