WASHINGTON, February 19, 2014 – Markets are schizzy today after yesterday’s light-volume happiness. During most of the morning, both the DJI and the S&P 500 started powering up again before backing off, awaiting this afternoon’s release of the Fed’s latest meeting minutes. Around lunchtime, traders apparently sobered up about the possibilities and decided, most likely, to scoop off some profits ahead of the Fed’s information release, pushing markets sharply down.
Now that the minutes are out, bulls and bears are battling it out, and the bears seem to have the wind at their backs for the moment at least, as the market is currently way overbought. As of about 2:30 p.m. EST, the Dow was off about 10 and the broader S&P 500 was down nearly three points. Go figure.
Making matters worse, everyone in America’s midwest and northeast has gotten incredibly sick of the continuing icy-cold temperatures and snow, both of which are clearly the result of
global warming climate change. We know this is true because John Kerry told us so. (Our headline photo echoes the mood.)
Actually, all the nonsensical spin on events is unnecessary. Blabbing Fed governors last week pretty much made the release of the current minutes a non-event by issuing various spoiler alerts. But headline-driven high-frequency traders (HFTs) don’t much care as they trade only the headlines, using this afternoon’s reports as an excuse to sell.
What made people nervous was that the Fed actually had the temerity to even discuss raising interest rates some time before the next century. The key though, as we basically heard last week, however, is that the Fed has gradually backgrounded the notion that interest rate hikes would start the moment the official unemployment rate hit 6.5%.
The reason why is ridiculously simple: the Fed, like every other human capable of using reason and logic, knows the current unemployment measure is entirely bogus in that it grossly underreports real unemployment—including those who’ve dropped off the unemployment comp rolls, those stuck in part time jobs because they can’t find full time work, and so forth.
The real unemployment number, the one that includes folks like these, still likely remains stubbornly stuck in the 10-12% range, indicating the Administration’s much-vaunted “recovery” remains a chimera for a great many disillusioned Americans.
Moving right along, it’s clear the Fed realizes that further QE bond-buying is just parking more money in bank reserve accounts, where it’s not being lent out and therefore not helping this situation. And that’s what’s led them to “tapering” the bond buying. It’s worn out its usefulness at this point. The “velocity” of money is virtually non-existent.
This, among other reasons, is why the Maven hasn’t been able to refinance his rental real estate for five years running. Banks are just sitting on the money, earning interest, increasing their own employee bonus payments, and occasionally making loans to George Soros, who doesn’t need them.
Today’s minutes make it at least fairly clear that Fed bond buying will continue to diminish; interest rates are likely to remain nonexistent and stable for some time to come; and, perhaps most importantly, the Fed doesn’t really have many more tricks up their sleeve and, implicitly, wishes that Congress and the Obama Administration would—if you’ll excuse our French—get off their collective ass and actually set some new policies conducive to growth. With the current DC crew in charge, however, that outcome is about as likely as Valery Putin telling the Ukraine to stop fighting and just go join up with Europe.
While we’re on the topic, add the current mess in the Ukraine to the ongoing slaughterhouse in Syria, the riots in Thailand and Venezuela, the building hyperinflation in Argentina, and the general incompetence of the current Brazilian government, and there’s simply a lot going on today that makes traders nervous. Hence that schizzy trading today we started out discussing.
We’re essentially sitting around, looking for opportunities for yield. At some point, this kind of dividend hunting will prove unproductive, but right now, we think it’s the safest thing to do. So we’re picking off the occasional preferred stock and REIT, buying them on the dips.
Among the REITs, we’re slowly climbing back into a couple of our old favorites—Two Harbors (TWO) and American Capital Agency (AGNC) we were forced to abandon last summer when the Fed’s taper announcement pushed all REITs off the cliff.
We also like PennyMac (PMT), a relatively new REIT specializing in purchasing distressed mortgages at bargain basement prices. Surprisingly, that continues to be a lucrative bet that, unfortunately, small investors can’t get into on their own. So buying shares of PMT is one of the few ways to take advantage of this continuing real estate deal.
We also have picked up some shares of a new-ish Citigroup preferred stock—symbol C-L, or C/PRL depending on your software—in an unfamiliar way, buying it in the OTC gray market phantom zone before it finally listed on the NYSE.
This sort of transaction is hard for the small trader to accomplish, mainly because the gray market is treacherous; but also because one generally never finds out about these “pre-issue” preferreds unless one is wealthy and knows about them. Which is unfortunately, as you buy these shares at a discount in the gray market—something you often can’t do when the stock actually achieves its formal listing. We’ll discuss this interesting realm in a future column.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He currently owns shares of TWO, AGNC, PMT, and C/PRL.
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk. Caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
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