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Preferred stock indexes just don't move this much, but the last few sessions' quick decline in...

Preferred stock indexes just don't move this much, but the last few sessions' quick decline in the Preferred Stock Index Fund (PFF -1.3%) has left it trading at a slight discount to NAV. Peter Tchir calls it "spiral risk," and it's there when illiquid underlying assets meet a "beta" vehicle meet a crowded trade (and a few more conditions). When does it end? Often after a capitulation day. The Financial Preferred ETF (PGF -1.2%) also takes a hit.
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Comments (8)
  • Albert Alfonso
    , contributor
    Comments (1923) | Send Message
     
    Tell me about it. PGF is where I park some of my cash and it has been hammered.
    12 Jun 2013, 03:25 PM Reply Like
  • Tack
    , contributor
    Comments (14021) | Send Message
     
    We've seen the capitulation fear trade in preferreds more than once during and after 2008. Just add this one to the list.
    12 Jun 2013, 03:27 PM Reply Like
  • Tack
    , contributor
    Comments (14021) | Send Message
     
    It's soon going to be a field day for preferred stocks and selected CEF's, some which are already selling at five-year-high discounts to NAV. But, be patient, the rate hysteria hasn't yet reached its final crescendo, and when it does many of these thinly-traded issues will plunge in price for a short time, maybe only intra-day, providing exceptional values and yields.
    12 Jun 2013, 08:31 PM Reply Like
  • poultry
    , contributor
    Comments (30) | Send Message
     
    I do not understand the phrase "capitulation day" as it relates to preferred stocks. Please explain.
    12 Jun 2013, 05:52 PM Reply Like
  • 153972
    , contributor
    Comments (822) | Send Message
     
    Buy PGF @ 17.02 and earn a 6.84% dividend. This bank preferred ETF is getting hammered because of the "fear" of tapering. 10 year Treasury bills are earning a 2.2%, and both the 12 month and 2 year Treasuries are earning .12%, .33% respectively. The highest earning CD amount is 1.05% APY GE Retail Bank.

     

    With 30-year mortgage rates @ an average of 4.10% net interest margin for the banks are improving.
    12 Jun 2013, 06:42 PM Reply Like
  • rheimerl
    , contributor
    Comments (411) | Send Message
     
    or buy cef "ffc" for 9% yield and under net asset value
    12 Jun 2013, 06:45 PM Reply Like
  • poultry
    , contributor
    Comments (30) | Send Message
     
    OK. Apparently no one is going to tell this neophyte what "capitulation day" is. Must be common knowledge. Hope I recognize it when I see it and respond correctly.
    13 Jun 2013, 02:05 PM Reply Like
  • privacy1015
    , contributor
    Comments (21) | Send Message
     
    By definition, capitulation means to surrender or give up. In financial circles, this term is used to indicate the point in time when investors have decided to give up on trying to recapture lost gains as a result of falling stock prices. Suppose a stock you own has dropped by 10%. There are two options that can be taken: you can wait it out and hope the stock begins to appreciate, or you can realize the loss by selling the stock. If the majority of investors decides to wait it out, then stock price will likely remain relatively stable. However, if the majority of investors decides to capitulate and give up on the stock, then there will be a sharp decline in its price. When this occurrence is significant across the entire market, it is known as market capitulation.
    31 Jul 2014, 07:10 AM Reply Like
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