Author: Innovative Income Investor

I continue to be mostly in the ‘hold’ camp. On Monday I nibbled a few bonds–maybe boredom, but they are good bonds–in fact if I thought we had seen peak interest rates I would have bought a truck load instead of a nibble.

With 13-14% cash I am in a comfortable position–but with cash paying me 4.5% to 5% (maybe more if I look harder)–I am totally not motivated to buy–and being 100% certain interest rates are moving higher for months to come I see better prices are ahead. My cash will grow by at least 1% in March as I have a fair sized stack of treasuries maturing on the 15th.

Again this morning we have equity prices up a little (1/4%)–of course futures prices are not highly meaningful and we will know in 9 hours how stocks trade–the 10 year treasury is trading at 3.94% and is looking for a reason to breach the 4% level. We have the manufacturing purchasing manager index at 8:45 a.m. central and ISM manufacturing and construction spending at 9 a.m. central.

We have only 1 Fed yakker on the schedule today so we should not have any ‘bombs’ thrown in this respect.

I see General Motors is laying off 500 white collar workers–not really meaningful in terms of employment news–any major company has a lot more dead wood around than 500–they probably could reduce 1000’s and not miss them. This looks like a PR stunt of sorts–they are saying ‘see we are keeping things lean and mean’–keep the activist at bay and feed the investor need to see that someone is taking care of business.

Well time to check the accounts to see what I see in terms of dividend and interest payments hitting the accounts (end of month/start of month).

Yesterday we had durable goods orders for January tumble by 4.6%–oh wait the headline number is misleading and looking at the numbers less transportation we see orders were up .7%. On the other hand there are so many qualifiers to every piece of economic data released one doesn’t have enough hours in the day to decipher all the possibilities. The data is here.

The debate goes on day in and day out–hard landing or soft landing? Each week the 1st time unemployment claims number is released and we see no weakness at all – I can all but guarantee that the Federal Reserve FOMC group is not going to take the pedal off the metal until we see some weakness in employment–and I am not talking about a few thousand workers being laid off by tech companies. I am talking about auto assembly plants being closed down etc.–and not just one of them, but maybe 1/2 of them in the country (not permanent closures).

I see some data related to consumer debt – i.e. credit card data and vehicle loans that would seem to indicates something is going to ‘break’, sending us in a recession. For instance credit card debt is up 18% year over year. This debt will kill the consumer eventually–at a 20% average interest rate. The average new vehicle loan is over $40,000–this is incredible and those with the lowest credit ratings borrow over $44,000!! In the last 2 years we have bought 2 vehicles–used of course, for a total of $60,000 and we paid cash (I simply hate ‘payments’ even though we could have borrowed at a very low interest rate)–I realize many people can’t pay cash and that loans are necessary, but there will be a price to be paid for all those giant sized pick up truck loans.

So with economic data remaining strong (or at least not weak) the Fed will continue to raise interest rates–it could be 50 basis points at the next last March meeting, but certainly it will be 25 basis points I would guess for the next 3 meetings – at a minimum. When 2023 comes to an end in 10 months rates will still be high, but something is going to ‘break’ in the second half of the year and it isn’t going to be pretty.

I don’t see anyway we will avoid a recession–the question is how deep it will be given the level of debt consumers and governments are racking up. We wait–wait for something to ‘break’.