A: Not much really. I have scaled back some of my positions (e.g., WFC/PJ, BML/PQ, BBT/PC, ZB/PC) after seeing a big run up in price. Got out of these right before the recent sharp pullback, which has been driven by concerns of a housing double-dip and general lackluster earnings of banks. My main Preferred position at the moment is the JP Morgan 7.9% Fixed-to-Float Non-cumulative Preferred I. This one doesn't trade on an exchange (purchased via a broker). Like it b/c it can't be Called until 2018, has favorable tax treatment, and is issued by the only bank that I view as bullet-proof in this environment

In general, not all that hot on Preferreds at the moment, despite the recent price dip in many of them. Seeing Bank of America Preferreds offer yields above 8% after recent pullback, but I'm concerned about the headline risk of holding their paper (that Countrywide purchase may go down as one of the worst acquisitions in U.S. history), as well as fact that I try to avoid co's with common stock prices trading in the single-digits (which is where BAC common shares would be if co had to do a big secondary offering to raise capital).

The only thing I've been adding in the Yield space is Agency REIT Cypress Sharpridge Investments (CYS 12.69 +0.16). I've highlighted this one the past in the $12.30-12.40 area. Added to my position about a month ago going into the dividend payment. Current yield is approx. 19%. Stock went ex-dividend on Monday, causing stock to adjust downward to reflect the $0.60 dividend. Group has been very strong as interest rates have come down (which causes the value of the mortgages they hold to increase). With the talk of QE3 circulating (see 10:27 Bill Gross comment), should continue to see interest in Agency REITs, as sustained low rates will help them maintain their interest rate spread (asset yields - borrowing costs). Nice thing about Agency REITs is that the credit risk is nominal under the current structure, as Fannie Mae and Freddie Mac step in to buy mortgages that default. Prepayment risk also an issue, but homeowners largely too far underwater to Refi and those who were able to likely Refinanced late last year when rates fell sharply. The lack of credit risk is why these co's are allowed to lever up in such a big way (group is levered approx. 6-9x at the moment). Clearly, any contraction in the spread has a big impact when leverage is this high. However, for now, it appears interest rates may stay low. Couple this with a weak housing market (which is causing capital flow out of Mortgage REITs that don't focus on Agency securities and is an overhang for many Bank Preferred stocks), demand for Agency REITs should continue to increase as investors search for Yield. It's a hard thing to find right now as other structures such as MLPs and Property REITs are trading on the rich side. AGNC is another Agency REIT I've highlighted in the past. NLY is one I noted a few months ago that Bill Gross was recommending in Barron's.

Outside of Agency REITs, SDT and UAN are two recent IPOs I mentioned purchasing based on their combination of double-digit yields and exposure to Commodities. Both stocks have had very nice moves from their IPO prices. I think both are rich at this point, but hoping to see more yield-focused IPOs that price right. The past few have come with yields of only 5-8%, which I don't find compelling when dealing with Trusts, especially as Commodities prices have started to come in.

Damon Southward
Chief Market Strategist - SCALP Trader