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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: BSGrinder who wrote (53302)	3/24/1999 11:26:00 AM
From: Freedom Fighter	Respond to of 132070

>>P.S. I can confirm that there is indeed a buying frenzy going on in real estate, at least in Washington, DC. Our house was on the market only one day and we got 4 offers, all of them over the asking price (as much as 6% over), none contingent on any other sales! The last time things were this crazy in real estate here was 1987. << 'Easy Al' the bubblemaster strikes again!

To: BSGrinder who wrote (53302)	3/25/1999 11:47:00 AM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

Kit, Congrats on selling the homestead. A preferred stock has 3 factors that impact its price: 1. Where the firm can buy it back, which is not important for the Royce or Gabelli preferreds, but is for the Tricontinental ones. Obviously, if the shares are selling for $25 and the CEF can repurchase them for $20 at any time, you are at risk. Also, if they are selling at $25 and the firm can buy them back for $25, they will be yielding more near term that they should as a risk premium. 2. Credit quality. No problem with any of these. Pristine credit quality is their main attribute. 3. Interest rates. Most of these shares are yielding 7-7 1/2%. Tresury long bonds are at about 5.5%. If T-Bond rates were to rise to 8 1/2%, the preferreds cannot and would not if they could, raise dividend rates. So, to get a higher rate than T-Bonds, they would have to fall in price with the same dividend. Basically, you are in almost zero credit risk and zero risk that they will not pay their declared dividend rate. But you are at risk that rates could go up and attack your principal. The offset is that as rates go up, the stock market would go down and the shareholders may no longer feel good about borrowing money to buy stock that is going down. Preferred shareholders also get a vote in most cases. They might vote to buy preferred, probably in the open market, which would provide a floor for prices. So, they are safe in the sense that very high quality, long term bonds are safe. They aren't going to default or stop paying interest. They are unsafe in that they have interest rate risk and they will decline if rates go up. My recommendation is, that if you have 5 year money in an income plan, these are very attractive issues. Under 5 years and I'd look for something shorter term at, sadly, much lower interest rates. MB