WASHINGTON, May 16, 2017 – We’ve been scarce this week, column-wise, since markets in the main have increasingly been driven by fake or non-existent news this week, as we’ve detailed in our companion column today.
As for stock market trading and investing ideas? Well, maybe it’s time to pause and relate a seemingly unrelated anecdote we spotted Tuesday on CNBC, quietly nestled among that site’s otherwise nonstop litany of useless but damaging anti-Trump headlines. (No surprise: CNBC is part of the rabidly anti-Trump NBC family.)
Today’s tidbit comes in the form of advice to today’s unfocused millennials, who, no surprise, will be forced to become tomorrow’s leaders, who will be involuntarily tasked with cleaning up the political and fiscal mess today’s “adults” have been casually leaving behind.
The headline reads:
Millionaire tells millennials: If you stopped buying avocado toast, you could afford a home
Here’s the money graf:
“That’s the contention of 35-year-old Melbourne millionaire and property mogul Tim Gurner, who appeared on a recent episode of Australia’s “60 Minutes.” He scolded the younger members of his generation for their unrealistic, YOLO [You Only Live Once] ‘expectations’ and for spending too much on indulgent lifestyles early on in their careers.”
Unsurprisingly, this “Melbourne millionaire and property mogul” advises buying homes, which it seems that millennials have finally begun to do, likely growing tired of their cramped basement HQs deep in the bowels of Hotel Mom & Dad. If so, this buying (and concurrent family formation) trend is unabashedly good news for an economy that could use it right now, with Washington and the Federal government enmeshed in yet another useless political power brouhaha.
While we’re into stocks, and while our rental property escapades have thus far been a negative proposition, Gurner’s advice is probably good advice for millennials who can currently afford that first home.
In normal times – which even we hope to see again sometime before 2050 – your first and best investment in this country has always been your own home. So it’s better to get that big purchase done before prices begin to rise again at too fast a clip and before interest rates on housing loans start moving back up again in a truly significant way.
Once a new homeowner gets that first significant investment under his, her or their belt(s), there’ll be plenty of time to diversify investments into other arenas, like stocks and bonds.
On the other hand, if you’re already in the game, we’ll share with you what we’re up to in today’s increasingly weird investing environment.
Our big suggestion for today: Don’t do very much in the stock market right now.
We did make a couple of small commitments over the last few days we may life to regret. But we’ve mostly been lightening up in our portfolios, genuinely fearing the return of “Sell in May” Syndrome, the kind of negative hit that’s been swamping Wall Street today, mostly the result of political headline fear.
On the other hand, if you do have a fair bit of cash on hand, you can watch markets tank without worrying too much about it. That’s because you’ll be confident that you’ll be able to put your cash to good use once stocks have completed what’s starting to look like a Spring Markdown Sale.
As for our portfolio, even though, like everything else in the market, our rather large position in Cliffs Natural Resources (symbol: CLF) is off a dime as we write this just before noon Wednesday ET, action in Cliffs has looked reasonably good this week, likely an indication that it’s bottomed out in oversold condition somewhere between $6 and $6.50 per share. We expect at least a double from this point. But, given our already large position, we’re not likely to pick up more at this point.
In our more diversified large portfolio, we’re taking pretty good hits today in nearly everything except – surprise – REITs, and primarily real estate owning REITs as opposed to mortgage REITs. (Note that advice to millennials above). Physical residential real estate has consistently been poised to rebound, and it appears that’s exactly what it’s doing. Hence this bright spot in an otherwise dismal trading day. Our position in Independence Realty REIT (IRT) is up three pennies, while our new and potentially growing position in multi-purpose REIT New Residential (NRZ) has only slipped 14 cents. Both pay huge dividends Wile-U-Wait.
On the other hand, pretty much everything else, including oil, telcos, preferred stocks, financials and tech are taking it in the ear today. Our big position in Allergan Convertible Preferred “A” shares (AGN/PRA at Schwab, your symbol may vary) has been getting hammered for days. It’s off $5.47 per share as of noon Wednesday, and it’s lost what looks like about $50 per share just this week.
Reasons: First of all, it pays a huge dividend for a preferred, roughly the equivalent of 7 percent per share at current prices, and it just went ex-dividend. But also, investors have gone negative on the mother company, drug making giant Allergan (AGN), just as they’ve gone negative on other drug makers, given the chaos that remains in the healthcare space thanks to the Obamacare death spiral.
In turn, since AGN/PRA is convertible to the common, the movement in the common affects the price of the preferred, which is not the case in “normal” preferred stocks, which don’t have this link.
But the saving grace here is that AGN/PRA shares have a mandatory redemption date of March 1, 2018, meaning that no matter what the price of your shares between now and then, you’ll still be getting those swell quarterly dividends. Meanwhile, no matter what price you paid for your shares – $796.76 as we write this – on March 1, 2018, Allergan must contractually take these shares off your hands for their full worth: $1,000 per share. See how that works.
We’ve vowed not to increase our large position in these shares, given that our large portfolio is already out of balance. But when these shares get driven down below $800 a share, we admit we are sorely tempted to average down. Only 10 more months, more or less, to wait for Redemption Day.
We did pick up a small position last week in the IPO of compression equipment purveyor Gardner Denver Holdings (GDI), which seems to be holding its own in the current tempest. We also picked up some shares in an older company, Chart Industries (GTLS) that also operates in this area. Both companies cater to the oil exploration and drilling sector, which has been doing well, at least until today’s action. GTLS is off like everything else today, but should do well if and when the latest Washington, D.C. smoke clears.
Aside from these, we’re pretty much observing our own advice by staying substantially in cash. Just too dangerous right now. Maybe it’s better to head off to Home Depot (HD) and purchase some home renovation stuff, the better to spiff up that real asset that many of us own. There’ll be time to get back to stocks maybe a bit later this year.