WASHINGTON, August 29, 2016 – As usual these days, Monday morning trading action on Wall Street doesn’t seem to make much logical sense. All three averages are up as of the noon hour EDT, with the Dow Jones Industrials picking up a nifty 114 points thus far after last week’s anemic action.
However, it’s hard to parse this action. If you think the Fed will jack up interest rates in September, you’d be dumping energy, gold and silver. But West Texas Intermediate (WTI) is off 86 cents at the moment while silver is up 7 cents and gold is gaining half a buck? What gives?
Financials are getting a needed boost by the current interest rate buzz, however, and income-oriented stocks are doing well, too, which is also weird. The logic here is that banks will profit by interest rate increases because that will induce them to actually loan money to someone beside Warren Buffett and at higher interest rates as well, meaning higher profits at last. But stocks like utilities and preferreds should be taking it in the ear, yet most of them are doing quite the opposite.
It’s clear that we’re dealing once again with a thin market, one that likely won’t get back to serious business either until September 1 (this Thursday) or after Labor Day on September 5. We’re also promised some IPOs in September after a summer drought of new issues, so we might see increased action around these issuances, particularly Ashland’s (symbol: ASH) Valvoline business which will become its own company as of its promised September IPO.
We’ll also likely see some action in the REIT sector next month, given that non-mortgage-centered REITs will become their own S&P sector as we advance toward October.
Other than these options, however, things are just too hard to parse, given that the bulk of this month’s thin trading has been by computers that run on the headlines, not on anything of measurable value.
However, if interest rates do really start ratcheting up, we could eventually see a nasty plunge in the averages. As the Fed’s free money for rich companies begins to dry up, stock buybacks will first slow, then mostly grind to a halt, putting an end to the phony “earnings increases” many companies legitimately report after having cut the number of shares outstanding. With that kind of buying heading for the showers and with small investors largely driven out by Wall Street’s organized crime syndicate of rich socialists, who’ll keep this market aloft after that?
We noted above that to our surprise, income-oriented investments like utilities and preferred stocks seem to be doing okay today despite the financial media’s fear that the Fed will get more hawkish on interest rates and soon.
An exception is our beloved Allergan Preferred A stock (AGN/PRA). It was steadily hammered last week after it earlier peaked at over $900 per share. It was absolutely pummeled Friday and is getting the smash-mouth treatment today, having gone down as many as 13 points this morning before bouncing back a bit.
AGN/PRA is currently off nearly $11 per share to stand at $839.13. We actually bought a bit more of this holding in our smaller accounts Friday, but kind of wish we’d held off until today. There’s no guessing where the selling is coming from, but it must be from machines that trade it in tandem with the common (AGN), which makes no sense at all, but they’re doing it anyway.
With AGN/PRA’s equivalent quarterly yield of roughly 6.5 percent and with a limited term remaining on the shares, which will be redeemed in toto on March 1, 2018 at $1,000 per share, we see no reason why people pump and then dump this stock save for the fact that it’s thinly traded and because they can.
We’re going to sit on our rather large position and collect the dividends until we make that nice capital gain on March 1, 2018. Yes, temporarily, drops like this make our portfolio look a little sick. But we’re trying to get back to our long game and slow down the trading. In this game, you generally can’t beat the computers and their trickery, so it’s often better for small investors to hide in less heavily traded issues.
At least that was our theory until we experienced the nuttiness in AGN/PRA. If we could ever clean out Washington and get regulators working for us instead of their rich prospective post-government career employers, some logic and rigor might return to the market. In the meantime, we get what we’re getting with our conservative investment in a safe preferred stock issues by one of the world’s largest pharmaceutical companies.