First, what do you mean by rising interest rates? Interest rates are on a curve and they don't move uniformly. The Fed can raise short term rates through the Fed funds rate, but has little effect on the longer rates. Right now, longer rates have declined as the market is starting to anticipate a recession.
Financial companies like banks and BDCs make money from spreads -- the difference between their funding costs and the rates on their investments. Usually when rates are rising, that means the economy is getting better and that means their borrowers are getting stronger, and banks do well when that happens and don't do well when the reverse happens.
The second part of the equation is spreads. All loan products are valued based on a discount rate that is determined using Treasuries plus a spread (i.e. credit spreads). Credit spreads are blowing out, which started with bad energy loans and is now spreading to the rest of the high yield spectrum. So loan values are declining. This could be bad for NAVs. It doesn't matter if HTGC has no energy exposure -- all high yield is getting hit.
I own HTGC, but these are a lot of headwinds that it is facing.
UDNT is the triple inverse dollar ETF. It has not been in existence for that long and is down from 14 to around 10. The US dollar may be breaking down. It hit a high of 100 in Dec, sold off to the 50 dma at 97.5 and then rallied short of the prior high. It has since broken through the 50 dma and just bounced off of the 200 dma. It might rally here, so watch where that rally ends before taking a flyer on the UDNT.
As I said before, these triple inverse ETFs can be dangerous if you don't get the timing right. DWTI went from 80 to over 400, but now it moves 50 or 60 points in each direction. NUGT has gone from 17 IN JANUARY to 37 today.
The technicals really can help when the market is this volatile. The slow stochastics seems to work well with FB. Anything in a downtrend should probably be sold whenever it approaches its 50 dma.
I don't think that you don't know. Maybe you don't want to put the effort in to acquire more knowledge. But at some time you bought these stocks, so you had to base that decision on something -- maybe you just threw darts?. You have admitted to having tax losses from tech investments so that tells me you decided to sell something, which means you didn't just buy and hold. The fact that your energy stocks have gone down means you weren't paying attention. I don't know if you own Conoco but they just cut their divy by 66%, which was predictable -- maybe not the amount and the exact timing. You can easily see the effect of past recessions on industrial stocks. My guess is that your yield is going to go up, substantially because your principal is going to go down, so current yield on portfolio value may not be the best way to judge performance.
Will divies in the rest of your portfolio continue? No one can predict the future, but the looking at past experience can help.
You say bash, I say point out risks to yield chasing investors who don't even know what assets NYMT owns. The stock has fallen from a high of $8 to under $5 and has cut their divy. You say opportunity, I say something has led to that decline.
Ignorant people always resort to name-calling when they can't understand something.
Lots of good items discussed this morning. First, Bloomberg had an article that said the breakeven prices on some areas of shale oil in the Permian and Eagle Ford are as low as $22. This means production out of those areas is not likely to slow until prices drop that low, meaning that prices have further to fall until production is removed. On the flip side, whenever we finally do get to a rebalanced supply demand equation, the producers from that area stand to benefit the most from a price rise. Pioneer (PXD) is the big dog in the Permian.
Second, there was a guest on Bloomberg TV who mentioned that the big banks have further exposure to energy. Finally, a third piece said that credit has tightened for 2 consecutive quarters and when that happens, a recession and debt default cycle follows. When the Fed finally admits its policy error, this will lead to an unwinding of the very overcrowded bullish dollar trade. The bearish dollar ETF, UDN, looks like it has bottomed. When the dollar does roll over, oil and gold will go up.
contra, my response to your post got eaten. Closed end muni funds have run up in price and many are overbought on an RSI basis, but many are still selling at discounts to their NAVs. If you buy, you might want to wait for an ex-date to take advantage of the price decline.
I am not worried about the long duration of the bonds and in fact, that is part of the attraction. As rates decline, longer duration will increase in price more than shorter duration. In the longer term, I am more concerned about the credit quality of munis as many of the states and cities will continue to struggle, especially if we have a deep recession. The tricky part will be deciding to give up those 6% yields and book gains and at what time, when we are at negative interest rates with no alternatives. At that point, in the cycle, it will probably be time to get out of fixed investments
As for WMC, the spreads had gotten so thin after years of ZIRP, that they shifted their focus to non agency and commercial loans in order to gain spread, which can't be levered up as much as agencies. It worked for a short time, but then it didn't. I don't know how agency mREITs are going to perform when we go into the next recession, but they won't have the benefit of a large drop in funding costs on higher coupon MBS that they had when the last recession hit. Gracie's the expert and he has identified some real risks for the industry.
I have never been a big mREIT investor, but I know that they move in cycles and that the cycle was ending for them. There would have to be a big wipe out resulting in a big discount to NAV for me to get interested again, and it would only be for a trade, as I don't know how they will maintain their divy if spreads tighten.
Bill Gross (whatever you may think about him) has said that most of the total return will come from dividends. But 80 stocks? Seems like you are just replicating an index fund. You must own several stocks in the same industry and they all can't be outperforming. By definition, there has to be a leader and a laggard. But it seems to be working for you. I just wonder about the strategy of always reinvesting divies as p/e's and values expand.
You may think of it as a fantasy chat board because you live in a fantasy world in which every stock goes up and continues to pay divies. Today another high yield stock (NMM) crashed and eliminated its dividend. Many of the high yield stocks like PSEC and KCAP are down huge, but still attracting investors chasing their high yields with enabling from posters like you who don't know the first thing other than stocks go up in a bull market.
We will see how NYMT turns out. I could be wrong, but at least I know what business they are in and what the risks are for the assets that they own.
The stock ran from $20 to $57 in 4 years. The chart has rolled over and the next support may be as low as $40. Not worth holding just for $1.50 in divies per year.
len, so you are not really just a buy and hold investor. You are engaging in some portfolio or income optimization and it sounds like you know what you are doing, so the idea that you can't determine when a stock is likely to give back a lot of gains just doesn't seem right. I think you just don't like paying taxes and are using that as an excuse.
You mention Home Depot. The yield is less than 2%. It has quadrupled since 2011. The p/e is 23. In the last bear market (the one before the financial crisis) Home Depot fell from 68 to 20. Just saying. You could probably clear $100 per share after tax and have that money to write cash secured puts and earn more than the 2% divy, and then re-enter the position when it invariably gives back some of that 100 point gain.
Of course, we have been in a bull market since the 1980's so your buy and hold was going to work. Since you weren't investing in the 1940's or the 1970's, you can't say what would have happened to your portfolio then when we had deleveraging and the bear market that goes along with it. And I'm sure Fidelity isn't going to isolate those periods either. No brokerage firm ever tells its clients that a bear is coming.
On an anecdotal note, my wife has an account at Fidelity. Last year, they helped her invest some money. She bought the Fidelity biotech fund at 220. It had a good year but I had her sell it when biotechs started to roll over this summer. She sold it at 266 and made 20%. It's now 166. She would have lost 100 points by holding. Not one call from Fidelity telling her to take a gain or that the sector had soured.
did you see the pop in NUGT? I have not bought this yet They will probably try to keep gold down, but it did pop up over the 200 dma.
Utilities are doing well for "low-yield stocks." SCG is up 15 points from $50 to $65 since Sept, and up $5 points in the last few weeks, but it is now overbought with RSI over 70. Could be in reaction to D's acquisition of Questar. I think we will see more mergers and acquisitions in the utility space with the acquirer's using their high priced stocks as currency. I think VZ and T have also done well, but may also be near overbought levels. But as people abandon MLPs, mREITS, and high yield junk stocks in the shipping sector, they may go back to the relative safety of utilities and telecoms.
The CEF muni funds have had a big run up since summer when their discounts were in the double digits. There are many that still sell at decent discounts (I use the CEF website by Nuveen to screen). But many are also overbought judging from the RSI levels. Doubleline's Jeff Gundlach has mentioned munis in many of his presentations and longer duration assets. Many (including Gundlach) think that we are going to follow the rest of the world into negative interest rates (NIRP) because that is the only trick that the Fed has left to try (it will probably fail like all of the rest of their tricks).
Of course there are risks. Many of the states and cities have worsening problems, and whether they can continue to raise taxes and fees to pay for their debt is an issue. A recession would bring that back to the forefront. But with Treasuries already under 2%, there's really not much available to produce any return when everyone is looking for safety.
As to putting them in a retirement account, I could see doing that only because there is no place to find any return while we enter this next phase. You might want to check out Build America Bonds (there's a couple of CEFs that have those). Taxable yields in the high 6's. They aren't issuing any of those anymore since the program ended, which gives them scarcity value. Again, people looking for yield will force these up in price as they look to park cash somewhere. At least I hope so.
Sarge, what is the case for financials? Here are the negatives. 1) Exposure to bad energy credits that they are just starting to take reserves for 2) Exposure to an impending recession. 3) A flattening yield curve with all of the major global markets going to negative interest rates, where we will eventually end up.
People piled into financials because they were so sure that interest rates absolutely positively had to go up. Except that long rates didn't cooperate.
Never confuse a bull market with investing expertise. Dripping telecoms, utiilities or consumer staples, ok. When the next cycle runs its course, I look forward to a full accounting of whether your longterm drip strategy worked on the stock of a highly levered company that buys subordinated paper of commercial real estate.
Kee, I give you credit for owning up to a recommendation that soured. You are right that we all do that. Every pick is based on an assumption. A pick can go wrong when the assumption proves faulty, but it also can go wrong if something else happens that no one was paying attention to (like the correlation between high yield spreads and high yield stocks). It also doesn't help when we get "confirmation bias" and everyone jumps on the same ideas without testing the assumptions.
Bull markets in high yield stocks always end, in fact, all bull markets in every kind of stock always end with big losses.
Some on this board keep insisting that high yield stocks are becoming better values as they continue to decline and cut dividends. At some point they will be right, like a broken clock.