Author: Innovative Income Investor

So yesterday Fed Chair did what he should have done a month ago–he tapped the brakes on potential Fed Funds rate cuts. It has been rare in the last year for Fed yakkers to lower expectations of what will happen to short term interest rates–instead continually setting expectations for further rate cuts. It is my view that we are in a good interest rate position–maybe short rates could go as low as 4.25%-BUT with what we know today there is no reason to get carried away to the downside. The Fed needs to save their bullets for when the data says we need cuts. Additionally the Fed balance sheet is still being ‘run off’ with balance sheet assets now under $7 trillion for the 1st time in years–this tool is still available for the Fed–to decrease or increase the run off rate. So the Fed has multiple tools available to affect interest rates–use them when data says it is needed–NOT when they back themselves into corners by yakking.

So this morning we get retail sales in about 30 minutes–last month we had a report showing strong sales–the forecast for today’s report is for modest growth in sales. Interestingly I was reading yesterday a quarterly report from a Canadian subprime lender (can’t remember who it was) showing bad loans went from 12% up into the 20% area–obviously Canadian sub prime borrowers are under pressure. Also it was reported a few days ago that the amount of debt that consumers have continues to rise quickly–almost at $18 trillion and delinquency rates are elevated at 3.5%. At some point in the future this isn’t going to end well–who knows when that time will come.

Well the 10 year Treasury is trading at 4.44% right now–in the area that it has been in for a few days–waiting for the supply/demand dynamics to move it up or down. Retail sales in 30 minutes could move the rate. Equity prices are lower this morning – attributed to the Jay Powell caution on interest rates earlier in the week.

No buying or selling is contemplated today in our portfolios–JUST collecting dividends and interest and today is a good dividend date (November 15). I have been noticing that a lot of the perpetual high quality, low coupon issues are off $1-$2 from their recent highs–they are tempting, but with at least a 50/50 chance of higher long term interest rates why would I want to buy these issues now?

Yesterday we had consumer prices (CPI) released and they were pretty much right on forecast. After the release interest rates fell–moving from the 4.42% area down to 4.36%–a somewhat normal reaction to good news (if hitting the forecast is good news). But that was it as interest rates reversed and continued to climb throughout the day all the way back to 4.46% before ending the day at 4.5%. Yesterday I heard someone (don’t remember who it was) taking the position that the Fed is going right down the same road as they previously took–lowering short rates even though the economy would appear to be decently strong with employment numbers that are also strong. Why is the Fed so intent to be lowering rates? I will have to say from a selfish perspective I like rates around where they are now–getting 4.6% or 4.7% is a fair rate for idle cash. We (income investors) went through years and years getting ‘hosed’ by the Feds insistence at have zero interest rates–let’s get back to normal and have rates above 4% for the long term.

This morning we have producer prices being released as well as the weekly employment claims numbers–how will interest rates react? It will be interesting to watch.

On Tuesday I bought a relatively small position in the new Sound Point Meridian Capital 8% term preferred (SPMA). I paid $24.86 and I see it is trading at $24.77 so at any lower price I may add a bit more. I reviewed all information available in historical documents from the company – it is limited given that the company was formed in 2022 and went public in 2024, but in the end I didn’t see a discernible different between this company and the other CLO owners (I.e. Eagle Point Credit)–the only missing part is a ‘history’. The company added more data with a earnings release yesterday.

November was a tough month for our portfolios–we ending up with the smallest gains in a year. Interest and dividend payments outweighed capital losses by a bit–a small bit. Gains were just .3%. Honestly we can’t depend on capital gains from this point forward which is why I am concentrating on the high yield sector for new buys. As we move forward and get a better read on interest rates it is likely that I will move back into some higher quality issues–when that time comes I have no earthly idea-but it will come.

Almost time for economic numbers so I will get my 30 minutes of CNBC–after which time I shut off the boob tube until I get some news late in the day.