Author: Tim McPartland

There has never been a time in history that investors and the general public have been so in tune with interest rate levels—at least that is my opinion. Of course the amount of data and continual news flow has never been greater. I remember back in the late 1970’s and early 1980’s that I waited anxiously every day for the Wall Street Journal to be delivered so I could look at share prices from the day before–wow have times changed. By 1984 I was online with a direct modem connection to the Wall Street Journal–at $1/minute. Every night I would burn up 10 dollars looking at news and quotes—that was when $10 was real money. I can still hear the modem trying to ‘connect’.

Now you see interest rates 24/7 and everybody knows details of interest rates–they can watch business news anytime to get rates. Rates are covered on the nightly news–at least when they shoot higher–you can’t get away from knowing interest rates. And of course with the 24 hour news cycle we have news channels that have to fill air time talking about something.

Of course as income investors our wealth goes up and down everyday (every minute) based on the level of interest rates–does this matter? I can look at portfolios at 9 a.m. in the morning and be up thousands of dollars—and then look again at 1 p.m. and be down a thousand dollars. Does it matter? All this news just creates fear, greed and angst. So much data creating too much worry–BUT I love it–I’m 70 and am not going to change now–always looking for a new way to earn a few more coins.

Speaking of interest rates–the 10 year treasury is trading right near 4.7% and in 15 minutes with release of the personal consumption expenditures (PCE) number it could crater and shoot up by 10 basis points. I’m hoping for a number on forecast and personally don’t want rates over 5%–but it could happen–soon.

I had mentioned before that I thought WR Berkley (WRB) was one of the best run insurance companies around–and their earnings announcement from Tuesday shows just how well they are doing. The company release is here – when one says a company is run like a ‘well oiled machine’ you think of WRB. WRB has 4 baby bonds outstanding with current yields of 5.62% to 6.04%–these are long dated maturities.

Also the small banks have been reporting–tiny Bridgewater Bank (BWB) reported earnings yesterday–earnings were decent, but I personally continue to worry about commercial real estate write downs. This bank has had virtually zero write downs–is it too good to be true?

GDP was just reported and the number came in softer than forecast—but jobless claims and continuing claims came in hotter than predicted. The 10 year treasury has popped up to 4.69% on the news—ugh! Stocks are down sharply based on earnings announcements last night–could be an ugly day all around–we will see.

Tomorrow we have PCE released–honestly for no special reason this worries me. With the 10 year at 4.69% now can we see 4.80% or higher if the number comes in hot–are 5% rates just around the corner?

As so often happens after we saw preferreds and baby bonds fall substantially in the last month (down 3-4%) we are seeing a nice rally in them this week. It is not that interest rates have moved lower, but simply that the 3-4% setback was overdone. Folks simply are now buying what they perceive to be ‘bargains’. Our accounts have risen nicely this week–but remain around 1-1.5% below all time highs–the continual stream of dividend and interest payments have been very nice in helping to offset capital losses.

Yesterday we had soft economic numbers released with the purchasing managers indexes (PMI) coming in short of expectations by small amounts–this simply continues a long stream of conflicting data. There is nothing in this data that indicates substantial softness in the overall economy. Today, in an hour, we get durable goods orders data–again not likely to be a meaningful number when taken by itself–we’ll see.

Futures markets are higher by a bit this morning–up 1/5% on the S&P500. Interest rates are flattish again at 4.64% (the 10 year treasury). We are awaiting GDP numbers on Thursday and the PCE Friday–these numbers have the potential to move interest rates into the 4.75% area if they are hot. If the numbers come in ‘soft’ we will see interest rates fall a bit–not dramatically. Numbers right on target (forecast) would be wonderful an keep income issues from tumbling.

Yesterday I bought shares in Hennessy Advisors 4.875% baby bonds (HNNAZ)–recall I had set a good til cancelled order at $23.35 a week or two ago and it executed yesterday. These are additional shares to be added to a position I already owned.

Once again we are awaiting inflation news on Friday with the personal consumption index (PCE) being released. Let’s face it – whether the number is hot or cold there is no rate cut coming soon–nor will there be a rate increase so ‘get on with it’.

I started looking at mREIT preferreds the last couple of days–honestly I haven’t owned an mREIT preferred for at least 5 years if not longer. I think it is time for a little bit of a nibble in this sector–just a little bit. I thought I would just add to current positions, but what the heck–a small nibble to be used as a furthering of my ‘education’ can’t be overly harmful. mREIT preferreds provide a ‘target rich’ environment with lots of fixed to floating rate issues now ‘floating’. An investor has a large selection of current yields–8% to 11% and many of these issues are trading UNDER $25–meaning there is further upside (YTM) if an issue is redeemed. We’ll see–I will buy a small nibble of one of these issues before the week is finished.

Yesterday was a bit of a green day in our accounts–not hugely green, but green nonetheless. The DJIA and S&P500 are up in premarket trading this morning–not much, but I am hoping for a quiet day today and through the week until Friday (PCE day). Interest rates remain tame–4.61% right now–just like equities quiet is good. It is interesting that there are virtually no Fed ‘yakkers’ this week–maybe they figure they have jerked markets around enough.