Home Forums Hunting & Shooting Hunter's Campfire Don't look now but stock market is booming

I love my REITS. I still wish I would have gotten one of the houses though. That was a deal I missed. REITs are good too however.... I am up about 85 % in 2 yrs with OHI.

EPR looks like it is at a good buy point now.

Market Update: What Is Happening Today?

By Rida Morwa - High Dividend Opportunities

We are seeing a lot of red today, as across the market in general, and in our portfolio as well. It is important to update on a few issues.

Coronavirus
Many are pointing to the Coronavirus outbreak in China which has varying effects across the market, most of which are psychological. We have seen a drop in commodity prices as traders anticipate less demand from China. This negatively impacts our holdings primarily through oil.

Treasury rates have rallied, being considered the ultimate "safe-haven" asset, that is hardly surprising. However the rally is rather weak considering the response of the stock market and the 10-year remains above 1.65%, well off of recent lows.


Source: CNBC

In the near term, we can expect the downward pressure to remain in any business that can be construed to have anything to do with China or might be impacted by demand in China. We currently have no exposure to China and do not plan to have any in the near future.

Mall REITs
Hardest hit has been mall REITs. We believe this is a combination of a negative report released last night by Euler Hermes. In the report, Euler suggests that 35,000 retail locations will close in the next 5-years and significantly impact the US economy with the loss of half a million jobs.

We are used to seeing these predictions which in our opinion fuel the flames of fear and have little basis in reality. While there is a kernel of truth in the retail bankruptcy spike and increased store closings, we believe many exaggerate the issues for their own gain. In this case, Euler Hermes is an insurance company and debt collector (owned by Allianz) which makes its money by insuring accounts receivables. The type of insurance a supplier might get that will pay if a buyer defaults after receiving a shipment of merchandise.

Like much of the "retail apocalypse", the report makes assertions assuming that current trends will continue indefinitely. As we have already identified, the majority of closures were due to a handful of retailers who were over-leveraged and failed to adapt to modern consumers.

That report, combined with the Coronavirus fears, where some might imagine Americans avoiding public places, have conspired to cause Mall REITs to be excessively hard hit. None of this changes our outlook on malls. Ultimately, it will come down to the earnings and outlook of these Mall REITs, and we will have more clarity on those in the coming month.

Market Downside
We gave our views a couple of weeks ago that the risks of a market correction are rising. Is the Coronavirus going to actually have a large-scale material impact on the US economy? Probably not.

Perhaps the best comparison in the SARS outbreak in 2003. While it might be a big deal from a humanitarian angle, the US economy generally keeps its wheels churning. After an initial drawdown in early 2003 when the news was breaking, the market went on to have a strong year.


ChartData by YCharts

We expected some near-term downside anyway, and any news might be the catalyst to cause what was going to be inevitable. For now, the technical charts are still in favor of the bulls, and there is no sign that any market correction has started yet. There is plenty of support for the S&P 500 index at the 3300 level and the 3330 level. There is also another possibility, the markets will move sideways walk in order to take some of the steam out of the move to the upside. This allows some of the inertia to the upside to be absorbed.

Action Plan
Selling into a panic is almost always a bad idea. We recommend investors keep their cool. The market's imagination is usually much more extreme than the actual impact.

We are invested in value stocks that provide a high-level of dividends. Nothing in the news today has convinced us that any of our dividends are at greater risk today than they were yesterday.

Stay calm, be patient. As a reminder, we have recommended to raise a 20% cash position, and we continue to look at high dividend opportunities with the best value. We are monitoring economic, market conditions and technical charts very closely. Should the markets keep going higher, or if the technical charts indicate an imminent market correction we will alert our members. We may recommend to raise an additional 10% cash in such situations.

For those members who do not wish to lose on income, we may recommend some hedges, or just riding out the correction is a perfectly viable option.

Note for New HDO Members
For new members sitting on large amounts of cash and wish to start building positions, investments worth buying to on dips include:

Energy stocks like BGR, VET, OXY, MIE, and ET.
Non Energy: IMBBY, XLFT, T, CLNC, SAR, NLY.
Solid fixed income Closed End Funds ('CEFs') that are in our portfolio. These include PCI, PTY, FFC, JPS, HPI and HFRO.
The Property REITs that are listed in our portfolio. The most notable ones are IRM, EPR, AWP, MAC, and GEO.
Solid preferred stocks trading at good value: GNL-A, GNL-B, AFINP, CLNY-I, CLNY-J, CEQP-, CDR-C.
Some deeper value picks like WPG, WPG preferred (WPG-H and WPG-I) and the PEI Preferred (PEI-B and PEI-D).

I swung trade PEI this fall but unfortunately it doesn't look positive but was a pretty decent REIT earlier. The rental market is crazy here with low inventory as is the single family homes we like to rehab. I wished we would have bought another house in Florida in 2008, crazy value.

The transport stocks will take a hit because of travel restrictions.

Then some other dominoes will fall some as well.

This is just panic on a small scale.

It will bounce back when this get under control.

I’ve been waiting for a buying opportunity to move back into some international stocks, this might have potential.....

Market Update February 27, 2020 -
Officially In A Market Correction

Feb. 27, 2020 7:36 AM ET

Rida Morwa - High Dividend Opportunities

Market Update - Officially We Are In A Market Correction

The Market Correction that we have warned about has materialized. The S&P 500 index initially tried to rally yesterday, but then reversed and closed in the red. Based on the extreme institutional positioning, even as the markets continued to head higher in late January and February, we were expecting a lower price until the rebalance has happened.

We started warning this when we drew the red line back January.

There is at least $50 billion of selling pressure from institutional re-positioning and another $50 billion from hedge funds.

Currently in a "Market Correction"
The futures today are pointing to more downside which puts the Nasdaq index in an official market correction (a market correction is defined as a 10% to 20% pullback from the most recent highs).

The S&P 500 index is still not in a "market correction". However, the futures point that the 200-day moving average for the S&P 500 index could be violated soon. If this moving average does not hold, we believe that the S&P 500 index is likely to go down towards the 3000 level next, and then possibly to the 2900 level next. Note that this will not go down in a straight line, but most likely there will be a lot of volatility in between. Currently, the markets are oversold and we could see a bounce.

Should We Sell Everything Now?
No! It is unlikely that we will see a bear market. We are only in a market correction. Market corrections last on average 3 to 4 months, and tend to fully recover after another 3 to 4 months. So the entire cycle, from day the market corrects until full recovery is 6 to 8 months. The recovery tends to be very swift and sharp, so trying to trade in order to buy lower is not recommended. This time around, the market correction is likely to recover sooner than usual.

Why We Remain Optimistic
The U.S. economy is still on solid footing. The commerce department reported that US single-family homes raced to a 12-year high in January. New home sales jumped 7.9% to an annual rate of 764,000 units last month, the highest level since July 2007. The gain in home sales was driven by rising mortgage application volume which rose 1.5% last week from the previous week, according to the Mortgage Bankers Association. Alongside this we have also hit the lowest unemployment rate since 1969!

International investors still look at US stocks for safely. The U.S. economy is still considered to be the most resilient, so it makes sense to see smart money flow here.

In fact such massive selloffs are healthy and allow the markets to consolidate.

Difference Between A "Market Correction" and a "Bear Market"

- Market correction: is defined as a drop of at least 10% or more for an index or stock from its recent high.
- Bear market: is defined as a 20% or more decline in stock prices.

Quick statistics about market corrections and bear markets


Some Things To Know About Market Corrections
- Stock market corrections happen often (about once a year).
- They tend to happen for no specific reasons.
- Market corrections rarely last long (about 3 to 4 months on average). They also take another 3 to 4 months to recover. So after a period of 6 to 8 months from the start of the correction period, stocks fully recover.
- They should only matter for short-term traders, and not long-term investors.
- In most market corrections, there is a sharp V shaped recovery, with very little bottom-building or retracing.
- A stock market correction is often a great time to pick up high-quality companies at an attractive valuation.

What to Do in a Market Correction?
- Don't make hasty decisions. Be patient, and take the long view.
- Market recovery will come sooner than you expect.
- Do not try to time a bottom, as recovery will be sharp and quick. You will most likely miss it.
- Make sure you are not on heavy margins which will magnify losses.
- Stay well diversified across all sectors. don’t increase exposure to any sector beyond allocation limits
- Despite all the corrections and bear markets, equities have fared the best in the long run. The S&P returned a "compounded annual growth return" (CAGR Annualized return) of 9% both over the past 10 years and the past 20 years. So it pays well to be a long term investor.
- Go bargain hunting for the best stocks, especially high-dividend ones.

What About the 10% Cash Position?
Back in January, we recommended to raise a 20% cash position, after which we subsequently redeployed half of the amount. We are still recommending to keep a 10% position in cash, and we would recommend to buy the dip using 5% if the S&P 500 index reaches the 3000 level. We will provide more guidance in case we get there.

As always, we will keep you updated on any events that would result in a change of our views.

Market Update: March 15, 2020

Mar. 15, 2020 2:26 PM ET•

Rida Morwa - High Dividend Opportunities

We have had an extremely volatile week with the fastest market declines we have seen in history pushing equities into a bear market. As we have been saying in previous market updates, the biggest risk to both the economy and to the equity market rests with:

+ Investors' extreme panic from the situation resulting in dumping stocks at any price.
+ Negative and continuous re-enforcement by the media resulting in more panic.
+ Governments over-reacting to the situation by closing off cities, countries and continents.

If addition, trading algorithms that are banking on investor fears and shorting the markets, result in market moves being exponentially more violent than they have been historically. Governments and regulatory bodies should ban these high frequency trading machines which put the markets at greater risk. But this is another subject for later.

Positives and Negatives
Today, there remains a lot of uncertainties about where we are heading as far as equity moves are concerned. The reasons is that investors and the general population are in full panic mode. So let us assess both the positive and negative forces at play today, and we will start with the negatives:

1-The Negatives

Panic and "panic selling" is still a major risk to equity markets. The resulting market losses means that for investors who sold and realized their losses, there will be less money available for them to spend in the future. Less purchasing power means less economic growth.

While we know that the virus situation has most likely peaked in Asia, we are still in the midst of the infection cycle in Europe, and probably will start growing in the United States in the next few weeks.

We have not seen lock-downs of entire cities, countries and continents in recent history. This has a double negative impact. First, this significantly reduces global trade, and second, it results in even more panic for the general population as perceived risk increases.

We have entered officially into a bear market, which means higher price volatility and possibly more downside risk.

Oil price war between Russia and Saudi Arabia is not what it seems and what is being spread on the news. To us, this is a coordinated war conducted by both countries against U.S. shale oil. This war could not have come at a worse time for the equity markets.

2-The Positives

We are starting to get a clearer picture about what this virus is about. As we have been saying all along, while the virus is spreading much faster than most viruses we know, it has a lower percentage death toll than the common flu. According to U.S. health experts on Thursday, the projected death toll of the virus is expected to be 0.1% to 1% only. "U.S. health officials on Thursday briefed lawmakers in Congress and said they believe the case fatality rate in this country will most likely be in the range of 0.1 to 1.0 percent." (see article here). Therefore we believe that the statistics used by the World Health Organization of +3% fatalities is very misleading because it does not take into account those who already have the virus but have not been tested, or will probably never be tested.

It is our opinion that the virus has probably already spread to millions of people with very minor symptoms or no symptoms at all, without knowing it. There is also a consensus among medical experts that the main group at risk are the elderly and those with pre-existing health conditions. Children have been the least impacted. Based on the above, the panic we are currently seeing is greatly overblown.

In Asia, it seems that we have already reached the peak of the virus infection, and this means that the peak for Europe and the United States should come soon. There is however uncertainty on when that will be.

Once again, we are seeing a systematic coordination by Central Bankers across the globe injecting money and cutting interest rates to stabilize the situation. As you recall, the same thing happened during the trade war a few months back, and the efforts of central bankers paid off well and helped avoid a looming recession. The tools that are being used are very powerful and effective, and can show positive results in just a few months.

There are already promising drugs being developed to cure from the virus, and preventive vaccines could be a few months away.

Our assessment of the situation
There is a a good amount of damage that has been already done to the global economy. But so far, the damage remains limited and can be reversed in the 2nd half of the year. We have a good degree of confidence that the tools being used by central bankers, along with reduced outbreaks that will start showing up over the next few weeks will help calm down investors. Most specialists seem to agree that the peak of the virus infection will come anytime between April and June, meaning that the worst is already behind us. While the bear market and volatility are likely to continue, for now the economic fundamentals remain relatively strong.

It is our view that the current bear market is likely to be one within the long term secular bull market that is set to continue for several more years to come. This long-term bull market is unlikely to be over.

About market valuations, everything we are looking at shows that many stocks are below 2009 lows. That is a ridiculous affair for what is happening. If you add to the equation that Treasury yields are at all time lows, this brings valuation levels even more depressed than the 2008-2009 financial crisis. Therefore while volatility will remain very high, the downside risk of equities is limited.

However it is important that it is unreasonable to expect to see a market bottom soon, and selloffs may get worse before they get better until we get more certainty about the virus (such as a cure or a peak globally). Markets hate uncertainty. We will touch on this subject in our technical analysis below.

Important Note to All of our Members
Although unrelated to this report, it was just released by the French Government that anti-inflammatory drugs that you can purchase over the counter (such as Advil, Brufen, Ibuprofen, Celebrex, Motrin, Cortizone) can increase your health risks if you contract the virus. Health officials point out these anti-inflammatory drugs are known to be a risk for those with this illnesses because they tend to diminish the response of the body’s immune system.



The French authorities said to use paracetamol instead (i.e. Tylenol or Panadol) because “it will reduce the fever without counter-attacking the inflammation.”

Please avoid using these over the counter drugs without consulting with your doctor first.

This is a further message from the French Officials:

"Anti-inflammatory drugs increase the risk of complications when there is a fever or infection.” They also said that the spread of the virus was “rapid and real,” but that 98% of those who had tested positive had recovered.

The S&P 500 index reached close to the 2400 level before rebounding. The negative momentum remains strong. The reversal or upside movement that we saw on Friday is quite normal during bear markets, and is usually followed by sharp declines that retest the lows, or we could see further lows. Basically on Friday, we saw short covering taking place for two reasons. First, the U.S. announcing further economic stimulus and more money to fight off the virus. Second, the shorts wanted to lock in their positions ahead of the weekend.

1- Short-term Upside Potential for the S&P 500 Index

There is a good probability that the rally we saw on Friday will continue to the 2750 level and then to the 2800 level for the S&P 500 index. Currently the index closed at the 2700 level.

2- Downside short-term risk for the S&P 500 level

It would be ideal if the S&P 500 index will retest the lows seen this week near the 2400 level. If this support holds, then it is likely that we have seen the end of the selloff. However the likely scenario is that we could break down below to the 2200 level which is a more realistic scenario. In all cases, the worst of the pullback is likely to be behind us. Equities are irrationally cheap today. We would not be surprised to hear soon that large institutions and hedge funds are already massively buying this pullback.

Best Course of Action
It is important that investors, during period of panic, to stay calm, and collected. Do not make irrational decisions based on market action or emotions. The long term bull market cycle is likely to continue, and history shows us that time is on the side of patient investors. Importantly, stay safe!

Note: The above report does not constitute any medical advice. It is based on the opinions on medical experts we have talked to, what is being published by reliable sources, and our personal conclusions.

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Market Update + Best Picks December 6th
Dec. 06, 2020 11:43 AM ET

High Dividend Opportunities

We welcome new subscribers that have recently joined us. The HDO Welcome Letter outlines the three main things you need to know for getting off to a good start.

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Hello HDO Family. It has been very good for "value" stocks the past several weeks. It is very pleasing to see many members reporting in the chat that they are getting into the green for the year and have been seeing substantial outperformance compared to the indexes in recent weeks.

There are a lot of moving parts in the market, but one of the trends that is becoming increasingly clear is that there is a rotation occurring from growth to value. This is very good news for us since dividend payers are overwhelmingly "value" stocks.

Santa Claus Rally came in early this year, however, will this rally continue?

If you’ve been paying attention to the views of several financial analysts, then you might believe that the recent market rally is going to slam on the brakes. Most of these same analysts have been predicting doom and gloom at the same time we were advising that the current market conditions point to strong market gains. In fact, today following the big market gains, I remain very bullish on equities and I will explain why.

A look at Historical Performance
The month of November was one of the best we have seen in decades. The S&P 500 soared an impressive 11%, which represented its 4th biggest monthly gain in history. With this big market “melt up”, some of our members are worried that the markets are becoming risky and it could be a good idea to trim positions, or that a Santa Claus rally may be elusive this year.

The reality is that December is one of the strongest months of the year. I don't believe that the November's strength is going to deter Santa Claus from coming to town.

In fact, if we look at history, the S&P 500 index has posted gains in every December since 1983. So it doesn’t matter if the S&P 500 is up year-to-date or down heading into the final month of the year; the S&P 500 index still tends to post gains in December.

Even more impressive statistics: This year, the S&P 500 is up about 14% year-to-date, which bodes well for another strong December as history tells us. Looking back to historical data when since the year 1983, during years when the S&P 500 index rallied 10% or more heading into the month of December, the S&P index managed to climbed an average 2.2% in December.

Having said that, the markets do not climb up in a straight line. I expect that the next two weeks of December will be bumpy. In fact, I expect a 2% to 4% pullback to happen soon as I explained during last week's market update. In fact, it is not unusual for the markets to trade lower in the first half of December. But historically, these dips were short-lived and served as a launching pad for equities. I fully expect that this pullback will mostly affect growth stocks rather than value stocks that we are currently recommending at HDO. However pullbacks usually affect all stocks and any pullback in the dividend stocks we are recommending is a buying opportunity. For members who are sitting on cash to be invested, this would present a great point to start buying.

When Bad Economic News is Good News for Equites
Just last Tuesday, Fed chairman Powell gave a gloomy outlook on the U.S. economy:

As we have emphasized throughout the pandemic, the outlook for the economy is extraordinarily uncertain and will depend, in large part, on the success of efforts to keep the virus in check." Powell said in prepared remarks for his testimony on Tuesday to the US Senate Committee on Banking, Housing, and Urban Affairs. "The rise in new Covid-19 cases, both here and abroad, is concerning and could prove challenging for the next few months. A full economic recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities."

Powell's remarks echo comments he made earlier this month. What Mr. Powell is effectively saying that the Fed's policy will remain extremely accommodative and that zero interest rates will be with us for a long time. Another objective that Mr. Powell is trying to achieve is to highlight these risks for the next U.S administration so that fiscal policies, such as COVID relief packages and federal spending, remains in place to further support the economy. Cheap money and government spending are a big plus for equities. Importantly, lower interest rates for longer means that equities remains the best place to be. As I stated in all of my recent market updates, there still remains a huge amount of cash sitting on the sidelines (parked in low-yielding treasuries, CDs, money market funds, and deposits). Much of these positions will need to unwind and will find their way to the equity markets. It is important to note that it is liquidity which ultimately drives the equity markets, and we are swimming with liquidity. I expect that treasuries will see selling pressures over the next few months as investor dump them and use the proceeds for a higher allocation to equities. This trend has already started as both the 10-year and 20-year yields have headed higher this week due to selling pressures.

Value Stocks Will Continue to Strongly Outperform
While growth stocks were the big winners until the month of October, value stocks have strongly outperformed since. What happened earlier this year is the pandemic became a dream come true for growth and tech companies. These firms were critical in maintaining commerce during closure and economic disruptions. Growth stocks were already expensive relative to "value stocks" and the valuation gap between growth and value widened even more as money was piling up into growth assets. Clearly any asset that gets overbought will suffer poor returns. This does not mean that growth stocks will suffer losses, but that their performance will be poor. I expect that we will see a long period of consolidation for FAANG stocks until such time that their earnings growth catches up with their current high valuation.

As explained in an earlier market update, "value stocks" tend to outperform "growth stocks" when treasury yields start to tick higher. This is exactly the situation today. Below is a chart showing the 10-year treasury rates heading higher over the past 3 months.


Source: Ycharts

Another positive factor for value stocks is that we'll get a substantial reopening of the economy by the middle of next year and a complete reopening by the end of the year. This is a big positive for value stocks. During most of this year dividend stocks (most of which are value stocks today) have lagged the general markets as investors were chasing a handful of tech stocks. The year 2021 and beyond will be a period where the hunt for yield will intensify. Those investors who have piled up on Treasuries and CDs are mostly income investors. As they unwind their positions, they will be looking for dividend stocks rather than growth stocks to supplement their income. We are set to see one of the best performances for value stocks (and dividend stocks) in decades.

Market Cycles
It is also important to keep in mind that the markets work in cycles: Typically, we see a long cycle where growth outperforms value, followed by a long cycle where value outperforms growth stocks. We are at the beginning of the "value cycle", a cycle that can go on for many years and possibly a decade. Given that the relative valuation gap between growth and value is very large, value stocks have a long way to catch up. Here, I would recommend that members who are seeing big capital gains in our recommended stocks not to be tempted to take profits. The upside potential is enormous, and we want to ride this wave to its fullest while collecting high dividends. Remember, we are in our stocks for income, and not for capital gains or losses.

Best Course of Action
In the face of any possible market volatility or pullback in the next few days, I encourage you not to be deterred. I have stated in my last market update that I am not a trader, and I am holding firm to all my positions. The underlying market remains very strong, and we have seasonality on our side. The period between mid-December till the end of March of the following year is the most favorable for investors. Given that our model portfolio is mainly composed of "value stocks" or cheap stocks with superior fundamentals, we are set to continue to strongly outperform. In fact, the spectacular technical breakout we saw last month could indicate that the stock market could go on to enjoy its greatest run in history over the next 5 years. We are at the very early cycle where value outperforms growth, and this is where we can expect most of the returns over the next few years. Any pullback should be viewed as a buying opportunity. This rally is just getting started for the HDO recommended portfolio.

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Best Picks for the Week
We choose our picks precisely because they are undervalued over the long-term. We do not look for what is going to be up next week hoping to flip it for a quick dollar. We look to build up our income streams, buying when an investment is cheap and holding for the income.

It is likely that we see the market take a modest breather in the near-term. So for this week, our "weekly picks" is a shorter list than we have seen, focused only on what we see as the very best deals right now.

We want to avoid "chasing up" those picks that have had a large rally and are likely to experience a dip. Remember, stocks don't go anywhere in a straight line. When buying after your portfolio has experienced a nice rally, it is more important than ever to ensure the picks you add to are those that are still significantly undervalued.

Pick #1 AGNC/NLY common shares
AGNC Investment Corp (AGNC) - Yield 9.3%
Annaly Capital Management (NLY) - Yield 10.5%
AGNC and NLY have been fixtures of our weekly picks since we started them on May 9th. Both have gained significant ground since then, yet they are still trading at a discount to book value.

Going forward we expect both AGNC and NLY will continue closing that gap and be trading at a premium in a matter of months. We have set the buy under for both at their last reported book values.

We expect that AGNC will be announcing their monthly dividend on December 10th. There is an off chance that they raise the dividend, though we believe it is more likely they wait until January. Their book value should be up slightly providing the market with more confidence.

Pick #2 NNN/O/WPC Common Shares
National Retail Properties (NNN) - Yield 5.2%
Realty Income (O) - Yield 4.6%
W.P. Carey (WPC) - Yield 6.0%

This trio is extremely powerful. For over 20-years all of them have increased their dividends every single year. O and NNN are both official "Dividend Aristocrats" and WPC will become one in a few years.

They have survived and thrived through the dot-com bust and the foreclosure crisis. Historically, in the years following disruptive events their dividend growth is higher than average. The reason being that macro economic difficulties create conditions where interest rates are low and real estate is relatively cheap. The ideal conditions to be buying real estate.

Buy the trio, and watch your income grow.

Pick #3 IRM common shares
Iron Mountain (IRM) - Yield 8.5%

We have recommended IRM as part of our weekly picks for several months now and the share price remained stagnant. Hopefully you have been adding as last week it finally leapt forward 10%.

IRM entered into a sale-leaseback with Blackstone REIT (BREIT) Selling 13 of their warehouses for $358 million and then leasing them back. The deal works out to be over $170/square foot.

This fits IRM's strategy as they are selling when the market is hot, getting a very good price. They are also gaining the flexibility to either renew or walk away from the lease in 10 years. IRM's paper business in the US is shrinking, so it is very plausible that in 10 years their space requirements will be less than today. Meanwhile, they are netting $260 million in capital that will be reinvested in growing their digital operations without increasing their leverage.

Pick #4 HTA common shares
Healthcare Trust of America (HTA) - Yield 5.0%

One of the hardest instincts to develop as an investor is to sell when things are green and buy when things are red. The HDO portfolio has had a really great few weeks and our portfolios have been awash with green more often than not. One pick that has gone against the grain has been HTA. For the past two weeks, the price has drifted down.

With the price now well below our buy under, HTA is coming back onto our picks of the week. The medical office building sector is very solid, with strong demand outpacing the ability of supply to keep up. HTA reported their highest earnings ever in Q3, yet their share price is still down 20% from its peak. Earnings are higher, the dividend is higher and conditions are ideal for HTA to keep growing both. We are happy to keep averaging into this one.

Pick #5 BRT common shares
BRT Apartments Corp (BRT) - Yield 6.1%
Apartments had a good month in November and the deals are diminishing. The market is accepting that people are generally paying their rent. The results reported by apartments in Q3 were generally positive outside of New York City and San Francisco.

BRT doesn't have exposure to either location. Their numbers were strong and the outlook is very positive. BRT is the highest-yielding apartment REIT that we are invested in.

Pick #6 HFRO common shares
Highland Income Fund (HFRO) - Yield 10.0%

Last time we talked about HFRO, they were trading at a discount of over 35% to NAV. With the rally the past few weeks, that discount is now "only" 28%.

HFRO has an eclectic collection of holdings and that complexity is no doubt part of the reason why it trades at such a large discount.

HFRO's largest holding is their JV with Catchmark (CTT). Lumber prices remain high and HFRO's preferred position is very likely going to be bought out when CTT recapitalizes the JV, which they intend on doing next year. We also know that CLOs have been getting stronger and that cash-flow is resuming.

HFRO's assets are performing well, and have a strong outlook. In time, the massive discount should be reduced. We can collect 10% yield while we wait.

CEFs and ETFs
As a reminder, we are still recommending a 45% allocation to fixed income. For those members who do not like to buy individual preferred stocks and bonds, then buying into fixed-income Closed-End Funds and ETFs is a great way to do it. Our best fixed-income picks today are:

Virtus InfraCap U.S. Preferred Stock ETF (PFFA) - Yield 8.2%
PIMCO Dynamic Credit Income Fund (PCI) - Yield 9.8%
Nuveen Preferred & Income Securities Fund (JPS) - Yield 6.3%

John Hancock Preferred Income Fund (HPI) - Yield 7.5%
XAI Octagon Floating Rate & Alternative Income Term Trust (XFLT) - Yield 11.6%.
Other great equity CEFs that we like at the current prices are:

Cohen & Steers Quality Income Realty Fund (RQI) - Yield 7.8%
Cohen & Steers REIT & Preferred Income Fund (RNP) - Yield 6.7%
Aberdeen Global Premier Properties (AWP) - Yield 9.1%
Tekla Healthcare Investors (HQH) - Yield 8.3%
Tekla World Healthcare Fund (THW) - Yield 8.9%
Cohen & Steers Infrastructure Fund (UTF) - Yield 7.2%
Reaves Utility Income Fund (UTG) - Yield 6.5%

For anyone interested, I use this guy (Rida Morwa) for my stock market advisor. He is running a 20% discount on annual subscriptions for the first 200 new subscribers (currently 40 have joined) and will draw a name out of the hat for a full refund of their annual subscription. I get nothing out of this, just sharing for those who may be interested. You can also sign up for a free 2-week look at the entire service. That is how I started four years ago.

https://seekingalpha.com/instablog/...f-plus-1-free-annual-membership#comments

Can you roll it out on an ongoing basis to an IRA or other tax free vehicle?

My company gives us TIAA or Fidelity and there is no contest between the two, I've been with Fidelity for 37 years with zero complaints. However, my company just made changes in our Fidelity plan limiting us to 20 funds vice the 133 we had before. I'll not do anything now but as we're about 2 years from retirement, I'll roll it out into my Fidelity IRA and away from their plan limits to give me more choices once we retire.

That's exactly what I did Pugs. Actually I did it twice, because I continued to max out my 401K for that last year of employment, then rolled it as well. With the IRA I can choose whatever I want, vs 20 or so mutual funds selected by our company 401K manager.

I think the age limit is 58 years or older, but one should check with your company 401K manager for details.

Market Outlook: Why the Markets Will Continue to Soar

Rida Morwa - High Dividend Opportunities

The new $1 trillion in stimulus already announced by the new U.S. administration will help counter any economic weakness due to COVID and stimulate consumer spending. We should expect at least another $3.5 trillion in stimulus and infrastructure spending in the year 2021. This will be very positive for equities as I will explain later. But first, I want to address some of the many concerns by members about the current market valuations and about the risks of a market pullback.

As stated in previous market updates, the two main components to watch on the general health of the markets are valuations and liquidity:

Valuations: We have many doom and gloom pundits that keep screaming that a crash is coming due to high market valuations. These are the same ones that have been calling a crash several months ago and have continuously been proven wrong. These pundits are looking at the wrong metrics as far as valuations are concerned. P/E ratios, taken on their own, do not mean much. One of the best valuation metrics to use to assess general market valuations, is their relative valuations to interest rates (or the 10-year Treasury yield). Keep in mind that prior to the Great Financial Crisis seen in 2008, the 10-year treasury yield was at 3.5%. Today these same yields are at 1.1%. This impacts valuations tremendously and indicates that the vast majority of stocks are not expensive.

Liquidity and Cash on the Sidelines: Another factor impacting the markets is the excess liquidity in the system. Today, it is estimated that there remains $6 trillion in cash and low-yielding money market funds earning nothing (or next to nothing). Much of this liquidity will find its way to the markets, and helping equities go higher.

Liquidity will get another Big Boost: Not only is excess liquidity high today, but it will get a huge boost once the full $4.5 trillion dollars in stimulus start circulating within the economy.

Based on the above 3 factors, it is no surprise that the markets have been exploding to the upside. This is a trend that is set to continue in 2021 and possibly beyond.

This also indicates that any correction or pullback is likely to be a shallow one. We have seen over and over again that any slight market dip has been finding buyers, which suggests that the markets are are ready to continue with the next leg higher. There is a strong demand for equities.

To have a better idea of how much the money supply has increased in the past 12 months, we can take a look at the M1 money supply chart below.



M1 consists of cash that is readily accessible for spending (or very liquid money), such as demand deposits, demand checking accounts, cash in circulation and cash that can be withdrawn immediately. M1 does not include money market funds, time deposits, CDs, or money invested in Treasuries.

By injecting more than $9 trillion into the market it is estimated that 22% of the circulating US dollar was printed in 2020 alone! This is huge.

While the M1 money only includes the cash that is readily available for spending, in order to visualize the bubble of cash sitting on the sidelines. we need to look into the M2 money supply. M2 includes M1 money, plus savings and time deposit accounts, certificates of deposits, and money market funds.



As we can see above, the chart looks very similar to the M1 supply, and the figure is about $20 trillion. This amount also excludes investment in Treasuries, part of which can also find its way to equites, given how low treasury yields are today.

The Economy and the Fed
We can expect the U.S. economy in the next two years as super charged with more money in consumer's hands, and with stronger corporate earnings. Infrastructure plans will power factories, demand for basic materials, and boost employment.

The Fed will keep its easing policy, including ultra-low interest rates, until it is confident that the economy is sustainable and that the unemployment figures are reduced. This will take a long time to achieve, especially the unemployment figures. The reason is that following the pandemic, work efficiencies have been increased, and unfortunately this means that there will be less need for workers to run the economy at full capacity, even with additional infrastructure spending. The Fed will have a difficult balancing act between keeping employment at a high and sustainable level, and accepting some sort of inflation. What we know already is that the Fed will accept an inflation level above its historic target of 2% in order to achieve its goals, and this is very good news for equities.

Risks of Money Printing and Low Interest Rates
Big stimulus plans and ultra low interest rates are a tailwinds to the markets, but they come at a cost. This cost is inflation and inflation expectations. While today it is difficult to envision any sort of meaningful inflation, we could start seeing its impact a few years down the road. I would expect inflation to reach close to 3% by the end of 2023, and probably much higher, in the range of 4% to 5% by the year 2025. At this point, the Fed will have to start raising interest rates, but that is a long time from today, and we will have plenty of time to react. There are many ways to protect your hard-earned money against inflation including commodities, commodity producers, floating rate loans, real estate, and inflation indexed products. We will be recommending to our members to get defensive when the time comes. Today, we will remain focused on the economically sensitive areas of the markets that are set to benefit from the blue wave and the economic recovery. Some of the biggest beneficiaries will be BDCs, mortgage REITs, property REITs, CLOs, and utilities – all high yield sectors.

Technical Analysis
When we look at the chart from a longer-term standpoint, the 4000 level for the S&P 500 level is the next target (or 4.1% higher from here). I would expect to see this happen relatively soon. We will probably need to see some sort of consolidation, and likely head to the 4300 level next, given enough time. While the timing is impossible to predict, I would expect to reach this target before the end of the year 2021. To the downside, the 3800 level is the first level of support, and there massive support level underneath at the 3600 level. As noted previously, the HDO equity picks are mostly smaller cap value stocks, and those are much more undervalued than the general equities. Currently we are witnessing huge demand for smaller cap stocks, and the upside potential for our picks should be much higher than that the S&P 500 index. Our picks have been strongly outperforming the markets since October 2020, and this is just the beginning. The valuation gap is huge, and our picks have a lot of catch-up to do. I would expect that we should beat the S&P 500 index by at least 200% this year.

The Bottom Line
The bottom line is that the markets are in a very sweet spot – ultra-low interest rates, an abundance of cash that will find its way into equities, an economy that is set to fire on all cylinders, and higher expected corporate earnings. The valuations are not excessive and this leaves plenty of room to have spectacular returns over the next two years. If you are worried about market valuations or irrational exuberance, we don't have that for the vast majority of equities. We're still in the midst of this market rally, and if you think you have missed the boat, you have not. My best recommendation is to stick to cheap dividend stocks that we are recommending. You get to collect a high level of recurrent income while sleeping good at night. The best sectors to be invested in today are economically sensitive ones, such as BDCs (example NEWT, ARCC), property REITs (example IRM, EQR, O, RQI, RNP), mREITs (NLY and AGNC), utilities (UTG and UTF), and CLOs (for example SAR and HFRO which have good exposure to CLOs). This should provide a good upside potential in addition to high yields. Please keep in mind that we strongly recommend to keep 40% to 45% of your portfolio invested in fixed income (preferred stocks, bonds, baby bonds, and fixed-income CEFs). This will help you reduce the volatility of your portfolio, your overall risk, and solidify your income stream. Some of my best fixed-income picks are PTY, PCI, PFFA, and DFP. This is in addition to our individual preferred stocks and baby bonds recommendations, and I own all of them personally in my retirement account.

Those M1 and M2 graphs are nutz........

Ponzi scheme.....

I'm already seeing lots of inflation...in ammo prices.

Ammo prices... pffft... you should see real estate in my locale..... crazy

Such a sad state of affairs.

Remember the dot com bubble?


Inflation is bad for stocks when money market rates pay better than stocks.

Inflation is good for stocks when money market rates pay less than stocks...... stocks then become a hedge against inflation.

Indeed. Crazy in north Idaho. We get mailers from realtors up there chasing our properties. Cash buys well over asking in a few days seems to be the norm.