WASHINGTON – Today proved to be another up day for US stocks. I figured we’d finally get a hit today. Or maybe later in the week for a reason to be cited. On the other hand, we got the astonishing news today that China, a longtime currency manipulator, was no longer a currency manipulator. What a difference a day makes. This strange tidbit of news also means the US-China trade deal may be looking better. Maybe even in time for an actual Wednesday signing. Then, who knows where Mr Market goes?
China no longer a currency manipulator? Really?
As for that currency manipulation stuff, here’s the latest.
“Stocks closed higher on Monday, resuming the rally that started last week amid news the U.S. will remove China from a list of currency manipulating countries, increasing optimism ahead of the signing of a key trade agreement… The decision to take China out of the currency manipulator list comes more than five months after the country was added to it.”
Clue: This is a fairly good sign we’ll get an actual US-China trade agreement this week. At least Phase I.
Closing averages on US markets
CNBC provides the closing Monday market stats.
“The S&P 500 gained 0.7% to close at 3,288.13, hitting a record high. The Nasdaq Composite also notched an all-time high, advancing 1% to 9,273.93 as Tesla shares surged. The Dow Jones Industrial Average rose 83.28 points, or 0.3% to 28,907.05.”
Given the first two points, it was time for someone to get in the headlines by stating the obvious about a US-China trade deal.
“‘It seems like things are going the right way,’ said Christian Fromhertz, CEO of The Tribeca Trade Group. ‘As we get closer to Wednesday, we’re getting more positive news on the matter.’”
What’s the deal on the hotly rumored US-China trade deal?
As for the actual US-China trade deal – or at least Phase I, which we should still not believe until we see the ink drying on it – we’ll find it should at least contain (allegedly) Chinese commitments to buy more agricultural stuff in return for lowering some tariffs on Chinese-made exports. Also, there’s at least some material in there, we learned, that involves intellectual property. That’s a big deal for US tech companies. Knowing the Chi-coms, however, the deal supposedly includes a promise by China to “discuss” these matters further. Ah, those usual weasel words? Do I hear a secret motion to table?
Anyway, it’s apparently a start. And at least China isn’t a currency manipulator any more. (Wink, wink; nudge, nudge.) But again, as traders and investors, we’ll need to stay loose. If, for some reason, this deal blows up again like it did the last time, US stocks will probably vanish into a deep, deep hole so fast that they’ll beat us all to China via the center of the Earth.
And now, for something completely different: Preferred stock flipping opportunities galore
On an entirely different front, our favorite preferred stock guru, Tim McPherson of Innovative Income Investor, has a genuinely handy-dandy spreadsheet available charting his extensive list of preferred stocks that go ex-dividends tomorrow, Tuesday, January 14, 2020.
For those unaware, preferred stocks are, generally, the most unbelievably boring stocks in the world. But they’re also deliciously different from the majority of common stocks. Not only do they pay dividends. Those dividends are often well in excess of the dividends paid on a given company’s common stocks.
Now, the flip side. Preferred stock shareholders can’t vote those shares. Only common stock holders can do that. Plus, unless these preferred shares are “perpetual preferreds,” they usually have a maturity date, like bonds. In fact, that’s what makes preferred stocks act very much like bonds.
Similar to bonds as well, if the underlying company gets into financial trouble, like corporate bankruptcy, preferreds are regarded as senior debt when compared to common stocks, which are last on the bankruptcy totem poll. However, preferreds are still generally junior to bonds.
Pinching in on that flipping thing…
When issued, most preferreds are priced (to the public) at $25 per share. Then, based on the fixed rate of interest, preferreds will fluctuate daily in price, moving up when interest rates go down, and down when interest rates go up.
All of which gets us to what Tim is up to with his flipping spreadsheet, which you can link to here. The preferreds (and perhaps some “baby bonds,” which behave like preferreds) listed here all have ex-dividend dates tomorrow, Tuesday, as noted above. And there are a lot of them.
On Tuesday, as is usually the case with any stock going ex-dividend, the prices of these preferreds will get marked down, initially by the amount of the dividend distribution. This is similar to the way it’s done with common stocks. It compensates new shareholders for the fact that they missed the dividend if they bought the stock “ex.” However, since the better preferred issues often recapture their un-discounted price fairly quickly after the ex-date, or even on that date later in the day, it’s possible to “flip” a chunk of them for a quick profit over, perhaps, a 2-4 week timeframe. But you need to line up your target(s) in advance, and then keep an eye on the prices after the market opens.
And do note, many of these issues are thinly traded, so they can be a little jumpy.
Now, this isn’t what you normally do with preferred stocks. That’s because they’re boring, slow moving securities that do, however, pay out a nice dividend. It ranges right now from about 5.5% to as high as 7%, depending on your purchase price. And those dividends are usually more durable than common stock dividends. But know your preferred before you dive in.
If you don’t want to be a preferred flipper, you can be a preferred holder
If you don’t want to try “flipping preferreds,” something I usually don’t do, BTW, well, then, just hold onto them and collect those swell dividends. It’s a good strategy if you want a relatively stable batch of income producing stocks. I get a nice chunk of income from my preferred holdings, along with a couple of high paying REITs I currently own.
Just be careful, though when it comes to investing in preferreds. Many of these issues are very boring, though very secure. Just like a decently rated bond. But in the event of something like another edition of 1987, or, God forbid, 2008, these stocks could take a big price hit depending on where interest rates go. So do establish some kind of orderly procedure for dealing with this in advance should it occur.
That’s it for today. And no more currency manipulator stuff, right, China?
– Headline image: Chinese New Year might come early in 2020 for US stockholders. Chinese New Year decorations along New Bridge Road, Singapore. Image via Wikipedia entry on Chinese New Year. CC 1.0 license. Photographer has placed this image in the public domain.