The “Let’s get Mikey” Market

There used to be a television commercial for Life brand cereal that we enjoyed immensely.  It’s worth a brief discussion. 

The ad featured a trio of brothers sitting around the breakfast table, trying to determine who was going to try a new cereal.  Neither of the older brothers had the nerve to give it a go (“I ain’t gonna try it; you try it.”).  But the youngest, Mikey, could always be convinced.  “He’ll eat anything!”

Sure enough Mikey liked it (“Hey Mikey!”), and the rest of the crew got spoons moving shortly afterwards.

The commercial can be seen here:
http://www.youtube.com/watch?v=vYEXzx-TINc

So with Mikey, so it is with us in the market.

We stand poised at a critical juncture in market equilibertarianism.  If we can find a “Mikey” – some gung-ho institution ready to swell the volumes and lead the pack on a buying spree – we will have a rally, and potentially a very big one.  But if “I ain’t gonna try it; you try it” continues much longer, there’s always the possibility that the milk will go sour, and, regardless the sugar content of the cereal, no one will eat it.  It will all get dumped down the drain.

We are a nation of fraidy-cats!  Terrified of our shadows after a smack from the economy and a dressing down from our bosses!  Too scared top take a risk where the odds are stacked in our favor and the payback is almost sure to best the “risk free” rate of return (if we can still use that term) from treasuries.

So it is.  If you’re that scared, then take a look below.  The preferred shares of Wells Fargo, bank extraordinaire of the United States, are available now at a wide discount.  (As subscribers know, we have highlighted the merits of WFC in this space on numerous occasions in the last six months.)

• BWF traded last at $23, for a yield of 8.56%.
• WFCprJ is a trust preferred issue of the bank, trading last at $18.15 and yielding a tantalizing 11.02%.

That’s on a bank stock – but one that’s not in any danger of being nationalized.  Unlike Citi and Bank of America, who also have high-paying preferreds on offer, Wells Fargo can stand on its own two feet.  The company isn’t in danger of collapsing.

Here’s the “J” issue preferred over the last six months:

It appears the selling has been over for a while here.  No one appears too interested in them now.

And why preferreds?

Because they continue to be thrown to the dogs.  And because they offer a heady upside.   And because in a market that’s getting tossed out with its milk, higher yielding shares are usually buoyed by their dividends.

So don’t wait.  If you’re going to be scared, you might as well be rich, too. 

The Residual Income Report recommends purchase of  WFCprJ now at $18.15.

And scrub the scaly parts thoroughly.

Matt McAbby
Analyst, Residual Income Report