Fed chair Powell may now have another arrow in the quiver to delay any taper in quantitative easing (QE) as the ADP employment report showed new employment at super soft levels.
The forecast for the month of August was for 600,000 new jobs–while they actually reported just 374,000.
Of course the differences in the jobs report between ADP and the ‘official’ report which comes on Friday are many times massive–so until we see the government report on Friday we don’t know for sure. This is one of those areas that investors tend to ‘believe’ the government report while mostly ignoring ADP.
The forecast for the non farm payrolls on Friday is 720,000 new jobs–we’ll see. I think a really soft number–under 500,000 will send the 10 year treasury down a few basis point – back into the low to mid 1.20’s. Something in the million area will hold interest rates near 1.30%.
Honestly 1 number means almost nothing–but in the dog days of summer any news is worth milking for hours and hours by the talking heads on the business news.
ADP and BLS numbers tend to sync up over time but for any given month, ADP is a poor predictor of what the BLS number will be.
So just my random babbling ………….
Not sure where this puts us.
The fed can reduce purchases but it can can only be something like $20 billion a month and keep the other $100 billion a month going for years if needed. But they can say they have tapered. Big deal.
We may be in a new normal of what full employment actually is but the fed may not have the honesty to acknowledge what it is.
IMO, all this points to the fed funds rate staying low forever. If congress gets the additional $3.5 trillion spending then the feds need to buy more treasuries ( print money) to finance the debt. Ending the idea of tapering.
So interest rates stay low but this inflation thing is cramping our style. Don’t want to take on additional risk but it may be time to buy securities above par (like GJH) and roll the dice. Maybe lose principal vs definitely losing to inflation is not a fun thought.
I find it hard to load up on almost anything in this low interest rate environment. At the same time, cash earns nothing. It definitely places me between a rock and a hard place. IMHO, too many investors seem to feel that if another widening yield spread occurs (circa 3/20), it will be a great opportunity to really load up and wait for the quick and sharp rebound. However, history doesn’t always repeat itself and that situation might be the start of a continual yield spread situation and we are then stuck with 5% yields when the current market is 6-7%. I guess I’ll err on the cautious side.
If it takes 2-3 years for an equivalent 6-7% preferred to become available compared to today’s 5% that is a lot of lost opportunity to have made some money. That 5% might sit around for ages while that 6-7% will disappear during the next recession due to lowering of interest rates. The 5% keeps on paying perhaps leaving you once again with cash in the same situation as today.. I have not done the math to see how long it takes to make up for lost time but some variation of this has to be considered. I guess the safest play might be finding something you know will get redeemed close to par in the meantime.
Randy, I thought the same in 2000 to 2001
I saw a market drop and jumped in. Only problem was it kept going lower. True I jumped into tech stocks which the market really took to the whipping shed, But if I had held long term would of recovered. Still hard to see 50% of your capitol disappear with no dividends to show for something.
Stick at least to a preferred paying something and balance with a safe f to f to
cover risk these days