Innovative Income Investor | Innovative Income Investor

Wow!! Starting the Week on a Sour Note

Investing is a mental game–and mentally everyone is worried this week. Of course not much has really changed since last week–but all the folks who were deniers of higher interest rates last week have now done an about face to say ‘higher for longer’. Certainly we can see they are much higher today with the 10 year treasury yield ramping up to 3.93%–up 10 basis points. Finally all the Fed yakkers are getting to folks.

Right now the average $25 share is off almost a 1/2%–surprisingly it isn’t worse.

I’m doing what I always do – watching for potential buys – but not very motivated to pull the trigger since we are being paid to be in cash and there are no real ‘bargains’ out there at this moment.

I am watching the Affiliated Managers (AMG) baby bonds and the Federal Agricultural Mortgage (AGM) preferreds. I had decent positions in these issues up until a couple weeks ago when I trimmed off a bunch to capture some nice 10-12% capital gains–now I am looking to re-enter when they set back some more.

The MGR 5.875% Affiliated Managers baby bond has set back 6% in the last 2 weeks from up above $25 not sure at what point I buy more of it–no rush–maybe a dollar lower would be a decent place to enter a Good Til Cancelled buy order.

Monday Morning Kickoff – On Tuesday

Futures markets are looking pretty soft this morning with both the DJIA and S&P500 looking down almost 1%. Interest rates are popping a bit with the 10 year treasury yield at 3.89% at this moment (6 a.m. central)–if economic data shows strength this week we may well see the 10 year yield over 4% once again.

Overall last week was a quiet week for equities as the S&P500 fell by 1/4%, although the index was up as much as about 1 1/2% mid week–with the CPI and PPI both being reported in the same week things ended up somewhat ‘calm’.

The 10 year treasury yield moved 8 basis points higher on the week to 3.83% from the close the previous Friday. On Friday the yield had hit 3.90% before backing off into the close. Economic numbers continue to be somewhat stronger than anticipated–in particular employment related data is not showing substantial weakness. Time and time again Fed chair Powell has reiterated that he watches the employment numbers closely.

Once again we will have plenty of economic news this coming week. We have the Q4 1st revision of GDP–likely not a market mover. We have FOMC minutes on Wednesday–and while this is old news it almost always moves markets as participants parse every single word. On Friday we have the personal consumption expenditures index (PCE) being released and the Fed chair has indicated that this is his favorite inflation data.

The Federal Reserve balance sheet assets fell by a giant sized $50 billion. Of course it was flat the previous week so a big drop was going to come sooner or later.

The average $25/share preferred stock and baby bond fell by just a bit last week – 3 cents. Investment grade fell by 9 cents with banks off 10 cents. mREITS jumped 18 cents with shippers up 19 cents. So quality issues down and high yield junky issues bouncing.

Last week we didn’t have any new income issues priced.

Up, Up and Away

I see that the 10 year treasury yield is now at 3.89% after closing yesterday at 3.84%. The Producer Price Index came in a bit hot yesterday, but it wasn’t until later in the day that equities reacted negatively to comments from Fed yakkers Bullard and Mester that they were in favor of 50 basis point rate hikes (they are not voting members of the FOMC committee this year).

Today we only have the Leading Economic Indicators (LEI) to deal with at 9 a.m. (central). Of course now every piece of news is scrutinized very closely and markets can react to news that in the past was ignored. Any news that shows the economy is stronger than anticipated is going to keep nudging interest rates higher.

Yesterday once again I did nothing at all–just watched. While income markets have been red I noticed that I had quite a few dividend and interest payments hit on the 15th (at least at Fido–eTrade is a day later) which helped brighten the month.

Did you see the Scorpio Tankers (STNG) earnings report yesterday? All I can say is WOW. Incredibly strong earnings–$12.66/share earnings for last year! I don’t invest is shippers, but certainly they are money good (for now at least)

Monday we have no stock or bond trading for Presidents day.