Modest Mouse recorded its first EP in 1994. But the band stayed under the radar until the massive success of a hit that came a decade later. That track was "Float On." The investing lesson is that sometimes overnight successes take a decade. So, with the overnight failure of the U.S bond market -- taking the stock market with it today, as it has all year -- I decided to launch yet another model portfolio.
This one is entitled ... FLOAT.
FLOAT is made up entirely of floating-rate preferred stocks. No, I don't think this year's move in interest rates, best captured by this chart from the St Louis Fed's excellent FRED database, is ... wait for it ... transitory. Not even close.
So, sharp-eyed readers will notice there is no link to a Google Sheet named FLOAT in the first paragraph, but rest assured that one exists. I can't give this stuff away ... it's working too well!
But, I will give you one of the 10 names in FLOAT, as an exemplar of the strategy. PNC Financial Services Group DS Series P (PNC-P) is, as described by www.quantumonline.com, my fixed-income website of choice, as:
PNC Financial Services Group, 6.125% Depositary Shares each representing a 1/4,000th interest in a share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series P, liquidation preference $25 per depositary share, redeemable at the issuer's option on or after 5/1/2022 at $25 per depositary share plus declared and unpaid dividends, and with no stated maturity
That paragraph really rolls off the tongue doesn't it? But that is the point. To survive these brutal markets, you must do your homework. Or have some aging nerd do it for you. Yes, that's me.
PNC-P went public April 20, 2012 with a very cool feature that allowed for the interest payments, which for the first 10 years of that paper's life were fixed at a 6.125% annualized rate, to float as of the May 1 2022 payment. So, now, PNC-P's quarterly payment is calculated by adding the 3-month benchmark LIBOR rate -- that's the London Inter-Bank Offered Rate -- plus a spread of 4.0675% on an annualized basis. The three-month LIBOR today is quoted at 3.67414 %. So if that rate holds through Halloween (PNC-P's dividend is determined two days before the payment date; the next one is 11/1) PNC-P will pay at an annualized rate of 7.74% in the fourth quarter, or $0.48 for every note based on PNC-P's $25 par value.
So, if you start collecting $1.93 every year on every $25 you invest, you will see the growth in your net worth. Even better is to reinvest those quarterly interest payments into MORE PNC-P, a strategy I refer to as persistent reinvestment.
So, that's a freebie from FLOAT. Let me just end with a statement of purpose. Like Modest Mouse's career, investing success doesn't come overnight. Popular investors like Cathie Wood may go on compliant financial TV networks to push extraordinarily unsuccessful ideas (The ARK fund (ARKK) is down 61% year-to-date). We nerds, however, always win.
Rampant inflation is the worst possible outcome for the global economy. Even worse, this wave of inflation was created by the very Central Banks that are now trying to fight it. Showering the world with free money tends to do that. So, portfolios like FLOAT allow you to benefit from their idiocy rather than being burned by it. It's the only way to invest in 2022.