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A Dagger to the Heart of the Stock Rally?

Wow–normally the ADP employment report gets little respect–but today with a tremendously strong report (versus forecast) investors of all sorts are taking note.

ADP claims that 497,000 new jobs were created in June–versus a forecast of 220,000.

The official (government) jobs comes out tomorrow and the forecast is for 240,000 new jobs – if the number comes in strong – say over 300,000 I think we are very near to cementing a FOMC rate increase the end of the month–and many folks proclaimed ‘they are done’ after the rate pause n June so reactions may be strongly negative.

We are seeing interest rates up strongly with the 10 year treasury trading at 4.06% right at this moment – up 12 basis points from yesterday which was up 10 basis points from Monday. A 2 day increase of nearly 1/4% should be considered very strong – and damaging to preferred shares and baby bonds. We need interest rates to flatten a bit-preferably now (of course I am talking my book here).

Many banking and insurance preferreds are off 1-3% – ouch. Glad I am well diversified and don’t hold large positions in any particular issue. I have to pause and think about the wisdom of moving ahead with more banking buys at this moment–need more data once again. Will these issues present better buying opportunities in the weeks ahead? Certainly that could be the case.

Let’s see the official employment report tomorrow and the CPI and PPI reports next week–if they have even a little bit of heat to them then the rate increase is baked in for later in the month.

30 thoughts on “A Dagger to the Heart of the Stock Rally?”

  1. Preferreds pay enough that I’m not too concerned about another bump or two, they’ll still pay better than cash. I’m most concerned about bankruptcy risk. Regional banks have shown to be vulnerable, just when they are righting the ship they don’t need to lose more value to rate hikes.

  2. I also believe CPI and PPI are coming down quickly. Rent and food are sticky, but have peaked and prices will be flat to down. Lots of weakness in commodity land. Job increases have been in hospitality, healthcare, and other services – just filling positions that have been open for months. At some point that will end. I also believe the JOLTS is misleading. A lot of open positions to see if there are better candidates than companies had to settle for during COVID. I think hospitality has peaked and retail will be bleak, and soon AI is going to start kicking in reducing hiring. Of course all those floating rates loans will be taking money out of consumers and companies.

  3. Rather wait until rates stop climbing to buy more fixed income issues.
    No point unless you like seeing red ink.

    Everything may be great but it obfuscates the fact that banks continue to increase their borrowing from the Federal Home Loan Bank and the Fed’s program to lend against underwater bank securities. If this doesn’t top out and go down, at some point it will be a disaster.

  4. For me- buying is on hold. Pretty sure we’ll be getting another bump and better prices – espec on the banking issues.

    Elsewhere, PLDGP is looking hot today- up over 6%

    1. Took the gift of this PLDGP bump this morning and sold my entire position for big gains

      This is now nearly $12 over call price in 2026

      Will barely pay that out in dividends til then when it is likely called. Who is buying this???

  5. I’m repeating myself if I say that next week’s CPI and PPI reports will be markedly lower. But whether that will influence the guys who proclaim themselves to be data dependent is another matter.

    1. The question that I do not have an answer too will bond yields return to historical levels or not. Take the 10 year
      bond. If CPI is 3% historically speaking the 10 year should be over 5%.

        1. Tim, if it does they will short sell us with 90 days call protection, ha. Dead beat banks need to step it up as most tbills are better deals now including the tax issue.

          1. Will a AAA/AA+ 5 year Federal Home Loan 6% due 7/13/28 @ par do as a substitute right now? CUSIP 3134GYVP4 Fidelity’s showing it in new issues…. And yes, it’s got a 3 month first call, but it’s not continuously callable. Callable every 3 months on the specific dates starting 10/13/23, then 1/13/24, etc.

            1. 2WR, I have only very loosely followed those. And in other forums my ear just seems to catch and remember complaining about early calls. Are there any in this sector less prone to being called so quickly you know of? Im afraid it would piss me off to get 3-6 month call yanks. It shouldnt…but it would. Certainly have no problems with a bit of 6% high quality though.

              1. Can’t say I do know of any more or less prone to quick calls, Grid…. Fed Home and Fed Farm really seem like odd ducks with how they price new issues. I have no idea how they come up with the coupons they set on their issues relative to rates of other agencies nor how they justify so frequently calling in bonds with very close to the same coupon as they are issuing at the same time…. It certainly is proof positive that agencies act differently than corporations when it comes to what parameters are necessary to justify an early call. The same rule of thumb for corporations does not apply to them.. But if you go into purchasing these assuming you’re buying 3 month paper because of the call possibility, it’s pretty tough to beat the rate and at the same time, tough to beat the long term rate as well if they happen to remain outstanding.

        2. Did you say 6.00%?

          For those who want to try their luck playing against the house, JP Morgan is dealing the cards. It is currently offering an 18-month callable step-up CD with a 3-step fixed interest rate schedule opening at 5.25% and closing at 6.00%, i.e., it is not a floater. Did I say 6%? Did I say, Wow? Did I say callable? Did I say poker?

          IMHO, The House of Morgan, which pays a paltry 0.01% interest on consumer accounts, is not giving away money here. The CD’s yield to maturity,, at around 5.6%, if you manage to get it, is only slightly above the alternatives, like 18-mo. callables at 5.40. There are also lower yielding 18-mo issues at, say, 5.20 with arguably better terms like non-callablity and monthly payments. Whatever works for you. Rates jumped today. I am hoping Morgan ups the ante. I may buy some chips.

          DYODD. Just my opinion.

        1. Alpha, tell them to buy my stuff up like its BACRP. That is all I care about ha. Im a little more reactionary and a bit shorter term focused than you. So this wont apply to you. But I have largely sat right in place last 6 weeks or so, though hanging onto my low double digit gains gotten earlier in the year. Im getting a bit impatient, nervous, and overly pessimistic without too many facts to support my case.. But I may be scooping more chips off the table and shoving them into my interest bearing pocket real soon.
          Feeling a bit in no mans land right now with my limited preferreds. Mostly have ones that really for time being appear to have very little upside to them. And I dont have it in me to buy the ones that may have some cap gain potential.

          1. Grid, Much the same here. Not today of course but accounts hitting new highs within last few weeks with low double digit gains YTD. Sticking with the game plan and adding nothing unless it lowers basis in the hold. Boring and simple but keeps me out of trouble. Will be buying more if any of 40 – something bids triggers below basis. A few popped in small amounts though now waiting for an even lower price for the next allocation.

            Meanwhile back at the CD and treasury window, looking forward to rolling those ladders month-to-month into higher yielders. We’ll have to start thinking more about duration if this curve keeps flattening courtesy of the 2yr+ that are asking for attention.

            Back on preferreds, making no prediction on rates – I’ll only trigger a buy when it improves my hold and will always trigger a buy when it improves my hold.

            1. Well Alpha, I have been doing one of your bid and wait things you mentioned, and it finally hit. I got back into your favs of illiquids today with 1000 shares of HAWLM. Had to get that 6% floor to be a player here.

              1. Grid
                well done the stock is trading well above 17.25 so not sure how you were able to do that especially given the low volume of daily turn over but nice.best sc

                1. Sc, I still view it as a “pain trade” especially with short duration treasuries near 5.5%. But historically this issue has traded at this price in higher era early 2000’s so that comforts a bit. As far as getting them. Typically ask doesnt show entire shares for sale. But this clearly showed 1000 wanting to be sold. And at 19 or over for well over a month. There also appeared to be no serious buyer other than me, so I just patiently waited. Sometimes trades can “magically” consummate a fraction of a penny higher despite being high bidder, so I side stepped that pitfall too. This issue just wont have much trading volume because the trade float is only 150k from a largely institutionalized issue IPO’d around 70 years ago or so. So this was just one seller selling a block and getting rid of it.

          2. Grid, one of the legacy of Doug Le Du in his earlier part of his website and wisdom was his old fashioned Excel spreadsheet called EAR (Effective Annual Return. I have modified his formula for WFC-L, which is essentially not callable because for WFC common to reach $210 would be most unlikely knowing how these banks would have expanded their leverage to achieve better :”performance” in good days. If one were to assume 80 quarters (20 years) then WFC-L gives 6.416. However, if one would plug 40 quarters (10 years) then Effective Annual Return (Doug calls EAR) drops to 5.78%. BAC-L as I recall has slightly lower coupon and the market deems BAC a stronger bank than WFC (SILLY, because the CEO who hustled with the Sicilian Mobster, Countrywide Financial (California) would be bankrupt except he used a loophole to get away stealing billions from BAC, until the smart lawyer saved the bank using the same tactic as Philip Morris – Atria.
            For me, at 80 year of age, facing with many tricky health issues and have avoided many apparent close calls but bet with my re study of medicine and “gut feeling”, I would buy more WFC-L if the Feds led by the least qualifieed Chair continue to raise the rate to destroy the economy following historical 2% inflation. CNBC ceased to call on Professor Jermey Segal, but some fool like Fergurson (once upon a time Fed Vice Chair) who has been repeating LONG WAY to go to get to 2%. They seem to have forgotten the near Great Recession when General Electric alls Fed chief asking for bailout. Silly to trash the banks.
            PS: I missed CSWSZ. Called Schwab and was told the coupon was just 6.4 or 6.2% mis interpreted by QOL. I still bought some near $25.3. SR-A seems to be less susceptible to bank de leveraging. NI-B. just 200 shares seem to earn its respect, thanks to Tim and that guy who has large positions of NI-B.

            1. johnkcal, if you’re referring to CSWCZ, the prospectus shows a coupon of 7.75%. I think Schwab told you wrong.

            2. Another good hold besides WFC-L, is a gamble on WFC-Q. Like i said in my last post, I am doing more short term holds because of the bigger swings at times. Very profitable year. I’m already out of the few thousand shares of NI-B. Bought at 23.50 in March and out in the last few weeks at 25.25. I want to hold long term, but if they ride up like an elevator, they can also come down like an elevator as well. I’ll then throw the gains at over par investments like WFC-Q, MER-K, ALL-B, PLYM-A, CHSCL, and others which dont seem to move much and are boring. I like boring for cash.

            3. John, you can eat some quality veges and go vegan and plug in 50 more years of life expectancy and WFC-L will still be outstanding is my bet. Common is not much higher than it was 15 years ago. I think anyone of retirement age can view that as a perpetual, ha.

              1. Grid, I do like the book by Anthony A. Goodman MD DVD 13 years ago LIFELONG Health: Achieving Optimum Well=Being at ANY age. Great Course book, also available at eBay.
                Lots of good stuff and alerts us that your doctor’s first priority is limit his/her time with your first visit, because he has other patients and his OWN needs and family, if any. I also recommend Cats Claw from the source:


                I have osteoarthritis since around 1986. No pain. Just a little numbness upon waking up. Worse now, but still NO PAIN. With swimming, I can feel blood would rush to the figures and feet. The old heart has problem pumping the blood and oxygen to the extremities. That was the problem my mother had and she died with just 80 some lbs taking an effective prescription med, which saved her feet amputation with the side effect of loss of appetite. Some Peruvian guy I encountered in San Diego desert region told me that his grandpa had same problem. They brew tea with the roots of Cats Claw. Source Naturals use the raw PLANTS not the roots. All purified Cats CLAW does not work including the patented super pure Cats Claw used by German doctors for AIDS patients. I do take 23 tablets mostly herbs. Just tinty amount of Valsartan and Amlodipine. I had many fainting spell by taking my old anount of BP meds or worse, flecainide, heart med suggested by Cleveland Clinic, model of ObamaCare. In general, Mayo Clinic seems the best (I subscribe to their newsletters). BP readings suffer in precision. Mayo says: take 2 readings and then take the average. Then take another one 1 or 2 hours later. In my case, one monitor gives alarming results, I took the med, experienced VERTIGO, and then fainted several times for many such episodes. Now, I found that my BP will decrease if I eat first meal ASAP. BP drops by 20 on the top number (lower number too). No vertigo and pulse rate a little low in 60’s Best to swim almost daily but I need to be careful not to have hypoglycemia.

                1. John, I can relate to the morning stiffness. Everything else checks out fine so far. Not on any meds. Except for 1mg of Habitrol nicotine mint I take about 20 times a day, ha.

            4. John I think it’s worth putting a standing order in for the CSWCZ at 25.20 and below. Pick your poison, in a dump in the market you may pick it up.

    2. Stephen:

      Yes, CPI will likely be much lower for June, but that may mark the low point for the year according to Jim Bianco (via 6/28/23 posting of Almost Daily Grants):

      “A Monday analysis from Jim Bianco, president and eponym of Bianco Research, points out that base effects loom large in the recent deceleration in headline inflation indicators.

      To wit: CPI exploded higher by 1.2% sequentially last June, driven by elevated energy costs including a nationwide average gasoline price of more than $5 per gallon (the current figure sits just below $3.50 per the American Automobile Association). Replacing that 1.2% spurt with the 0.42% post-2019 average monthly reading will, accordingly, result in a dramatic decrease in headline annual CPI to just over 3% next month from 4% in May and 6.5% at the end of last year.

      Yet those base effects will soon begin to work in the opposite direction, as sequential price pressures cooled substantially in the back half of 2022.

      Thus, a 0.42% monthly average through December will leave headline CPI at 5.5% by year-end, Bianco calculates. Even a 0.15% monthly figure – which represented the average reading over the decade through 2019 – would generate a 3.8% CPI in December, well above the prospective June figure and nearly double the figure that Powell et al. consider to be compatible with “price stability.”

      “Barring any severe economic downturn or price shock, inflation is likely to rise through year-end,” Bianco concludes. “The Fed will find this unacceptable.”

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