WASHINGTON. Stocks have mostly been limping along this week. This has been due at least in part to traders and investors big and small taking off early for the summer’s first official beach holiday weekend. But President Trump’s definitive cancellation of his June Singapore summit with Little Rocket Man brought out the bears in force in Thursday morning trading action.
As of about 11:45 a.m., the Dow is off by 200.15 points, a 0.80 percent loss on the day thus far. The broader-based S&P 500 is off 15.43 (-0.56 percent) while the tech-heavy NASDAQ is down 33.59 points (-0.45 percent). The percentage drops are not impressive thus far, as they are likely just another mindless algo-driven, headline-driven plunge that has nothing to do with economic reality.
Couple this increasingly tedious and predictable headline trading action with lower pre-holiday volume, and you get significant moves – often negative – that probably don’t have significant support.
That said, one wonders on occasion whether all those Wall Street computers and rich guys are trying to keep the market down to create a bad atmosphere running up to the midterm elections. We wouldn’t put it past them. The Singapore summit cancellation is just the latest bearish excuse for doing more selling while the bulls are at the beach.
Singapore summit fallout: Chicoms are actually playing the markets
Today’s market gyrations are all on spec. Absolute nonsense. It’s clear that China – which had very likely forced the Norkies to capitulate to U.S. terms earlier – told them a week or so ago to go back to their evil, rotten ways for awhile. The idea: rattle Trump and his chances (slim at best) for a Nobel Peace Prize as a way of forcing him to give up on his trade demands, particularly in the realm of tech. Hence, the return of Norkie saber-rattling.
So President Trump decided to get ahead of the game by cancelling the Singapore summit first, pre-empting what the Chinese government likely told Little Rocket Man to announce. Nya, nya. Communist diplomacy as usual. Except that the Commies have never played against someone like Trump.
The Chinese play a long game and, like most Communist regimes, don’t have to worry about public opinion like American presidents do. So they’re applying political pressure (North Korean nukes) and domestic economic pressures (laying tariffs on farm goods, most of which come from Trump Country) to force Trump to back off, restoring a status quo that’s 100 percent favorable to the Chinese.
Stuff like this has worked for them before, so why not now? So Wall Street follows along like lemmings, as what are effectively Chinese-driven business headlines dictate trading today, not profits. No Singapore summit? Sell, sell, sell!
The international trade situation is not likely to settle down for some time, however, so we may have to get used to this nonsense. At least for now.
Economic news? Fuhgeddabouddit
Economic news – real economic news – just doesn’t seem to influence major stock moves these days, forcing more and more traders and small investors to go along with the machines and trade, trade, trade. Despite continuing good-to-great earnings from most listed companies, this nonsensical action has kept stocks in suspended animation for months. It seems that the only investors taking home actual money every month lately are those who invest in high-dividend and select preferred stocks and baby bonds.
No, the returns associated with these investments rarely include big time capital gains. But there haven’t been a lot of those lately anyway. So why not take fat (and presumably safe) dividends while the idiots trade on the headlines? That’s generally what we’ve been doing.
Trials and tribulations of Allergan
Given our inappropriately oversized position in Allergan (symbol: AGN), our largest portfolio has been struggling in 2018. But our dividend and interest payments remain way above average. Even better, the underlying prices of the stocks providing those dividends and interest payments* remains relatively stable. That’s held true even during this period of ever-increasing interest rates. Evidently, holders of these investments, in general, do not fear the effect of higher rates.
Preferred stocks and baby bonds: Still a good port in a storm
We look to add to our stable of preferred stocks from time to time. Term-preferreds, our favorites, are hard to come by at decent prices these days. So the next best thing are “perpetual” preferreds. These don’t have a fixed redemption date, which makes them bad investments in a rising interest rate environment.
However, many of these perpetual preferreds now come with an attractive fixed interest rate. That rate, at some future point, begins to float. The stock then starts paying x-percentage fixed dividends (whatever the prospecturs states) plus whatever the 3-month LIBOR (the standard London Interbank rate) happens to be each quarter.
In other words, such floating-rate preferreds (or “baby bonds”) can still protect investors, to some extent, from increasing interest rates. Their rates, too, float with prevailing rates after a certain point in time.
*NOTE: “Baby bonds,” look and feel like preferred stocks. They are, generally speaking, priced at $25 upon issue, just like preferred stocks. “Real” bonds are priced in multiples of $1,000 and trade in a different way from stocks. But those baby bonds trade just like stocks and preferred stocks. But, since they are baby bonds, their “dividends” are really interest. A hair split, of course, but you should know.
*Headline cartoon by Branco. Reproduced with permission and by arrangement with LegalInsurrection.