"Preferred stock has been much in the news over the past 18 months, primarily as the favorite way for cash-strapped banks to raise new capital," explains Mark Salzinger.

In The Investor's ETF Report, he says, "These unusual securities are popular because they offer high yields and have a higher position in corporate credit structure than common stock." Here, he offers a pair of favored ETFs that invest in preferred shares.

"We caution that preferred stocks also have significant drawbacks that dampen their appeal. Apreferred stock is really more like a fixed-income instrument than an equity security.

Stocks felt choppy all day, although the late day move and afternoon stability allowed stocks to have another solid day. Housing starts added some strength, and the buyers are still deciding they need to be in rather than out of the market.

Here are today's unofficial closing bell levels:

Dow 8,746.51 +25.07 (0.29%)
S&P 500 945.36 +2.49 (0.26%)
Nasdaq 1,836.89 +8.21 (0.45%)

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TheStreet.com's Jim Cramer says the whole market pays for the Treasury's purposeful indecision.

What are they going to do about the preferreds? Are they going to let them go down the drain? Are they going to keep current management? What are they going to do to reassure foreign governments about the obligations.

Don't worry. We will know this weekend.

Oops.

That's how we left last Friday, with an understanding that the Treasury knows that every day it waits to take over Fannie Mae (NYSE: FNM) (Cramer's Take) and Freddie Mac (NYSE: FRE) (Cramer's Take) is a day when things get worse, when the nation's credibility darkens -- as this is sovereign debt's repository -- and when rates can't go down.

But the Treasury's not like what we think it is. The Treasury wants to wait for a collapse; it wants everyone to know that Fannie and Freddie are history because it is afraid. It doesn't want to be interventionist, and if it does, it wants the people who run Fannie and Freddie gone, and yet it doesn't' really know how to do it until we have total collapse. Then it has the cover of total collapse and doesn't have to say it intervened or bailed out or whatever it is so worried about.

Ted Allrich is the founder of The Online Investor and author of the just released book: Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he'll offer advice to investors who are just getting started.

Preferred stocks are much like squirrels. They don't live on the ground. They don't fly in the air. They're always somewhere in between. A preferred is like that. It's not equity in a company. It's not debt of a company. It's always somewhere in between.

That state of being, being in between, sometimes pays handsomely to investors. Other times, it leaves them totally isolated, with nothing to show for their investments. Here's how preferred stocks work, and why they're really for institutions, not individuals. Still, individuals may find them irresistible when they see some of the yields these hybrids offer.

June 30 was the day when Thornburg Mortgage Inc. (NYSE: TMA) had hoped to complete at least 90% of its preferred stock repurchase as part of a last ditch effort to save the company from bankruptcy and return it to viability. CEO Larry Goldstone continues to state that bankruptcy is not an option.

Well, when the stock has lost 99% of its value, the company posted a $3 billion quarterly loss, no one will buy what you have to sell, shareholders who have lost just about everything don't want to play anymore, and Moody's handed the company a C (for crap) rating.

Bankruptcy looks like a realistic scenario. And just to keep things interesting, the SEC is investigating the company's 2007 financial results, the timing of margin calls, as well as accounting practices for the company's mortgage-backed securities.

Thornburg's problems have nothing to do with the sub-prime mortgage debacle, at least not directly. Thornburg specializes in jumbo mortgages to those with impeccable credit. Its default rate is the envy of the mortgage industry. So the problem is not creditworthiness, but liquidity. Investors simply are not interested in purchasing mortgage-backed securities of whatever quality in the secondary market.

Thornburg's latest last ditch effort calls for the company to purchase 90% of its preferred stock in exchange for $5 and 3.5 shares of common stock for each share of preferred stock. Shareholders recently gave the company permission to increase the number of shares outstanding from 500 million to four billion in order to make the tender offer possible. The deadline for tendering preferred shares has been extended to September 30. The stock is currently trading at $0.22 per share, way down from its 52 week high of $27.82.

Even a contrarian speculator will have to work very hard to find value in this one.

While reaffirming their focus on keeping inflation in check, the Federal Reserve Board has been passive about interest rate increases lately. The Board has been very clear they will remain inflation hawks and will take action to prevent any significant upward inflationary trend.

In the meantime, Wall Streeters are taking on ever increasing debt with more leveraged buy-outs, issuance of more corporate bonds and preferred stock and the first-ever unsecured bond offering by a hedge fund. According to the December 11, 2006 issue of Barron's, Citadel Investment Group of Chicago sold $500 million of five year notes yielding 6.343%.

It is not just Wall Street, either. In the real estate world the same thing is happening. While mortgage rates have moved up over the last 30 months, they are still historically low. For example, in 1998 we refinanced a property using a conduit loan and were thrilled to lock-in a rate of 6.7% (25 year / due in 10). The best traditional loan at the time was 8.1%. After rates moved down our fantastic loan seems only average but we saved some money and had predictability.

Now we find conduit loans can be had as low as 5.7% and traditional mortgages at 6.2%. These rates are typically offered at a maximum of 75% loan-to-value (LTV), with high occupancy, and credit tenants and may vary during the course of the day, based on many factors. At these rates we are interested in borrowing more money. Our business model is very conservative so we do not pursue maximum leverage. We might only seek up to 65% LTV. However other real estate investors are maxing out their leverage, apparently believing the market rates will move higher in the foreseeable future.