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Author: Innovative Income Investor

FOMC Now Has Cover for ‘Pause’

So today we had a dovish producer price index which was on top of the softer consumer price index–of course this is excellent news for us all.

With the most recent data the hawkishness of the Fed is no doubt going to be softened this month–but does that mean no rate hike?

The FOMC is in a pickle. Two weeks ago I thought–and many people thought — 25 basis points was a cinch while 50 basis points was ‘on the table’. Now any rate hikes at all will serve to worsen the banking situation–higher rates equal lower bond values. Of course the Fed now has backstopped much of the underwater bonds held by banks–but just the same the Fed will not want to exacerbate the situation. What to do? It will be extremely interesting to watch next Wednesday.

Today I bought more CDs–1 year maturity. Here is what I found at Fido right now for 1 year terms. I bought the American Express 5.35% which is call protected (as all those below are).

I took a look at the 2, 3 and 5 year maturity issues–but once you move out in maturity many (or most) are NOT call protected so for now I stuck to the 1 year. We will see where they go from here and what is offered–I have quite a few treasury notes maturing later this month so will be considering further CD’s. I really need the markets to calm before I start heading back into the preferred issues–of course I won’t catch the bottom in preferreds, but I never do since I am a lower risk investor.

Arbor Realty Trust Attacked

What has historically been one of my favorite commercial mREITs, Arbor Realty Trust (ABR), has had a blistering (and very poorly written) report published by a purported short seller. For those reading the various comment sections on this site you already know that a research firm named Ningi Research has published a paper accusing the company of massive fraud–very massive fraud. The report can be found here. The company has responded and their response is here. I won’t go into any details about the report, but suffice to say the report is written in a very child like fashion so whether this is a ‘serious’ report or not is questionable.

ABR has a number of preferred stock issues outstanding and the report has hurt the common and preferred of the company. At this time I have little or no exposure to the preferred shares.

FOMC Meeting Next Week Should be a Good One

Of course we won’t know the actual happenings of the FOMC meeting next week until the future, but at a minimum we will have a Jay Powell news conference next Wednesday at 1:30 p.m. (central) to provide some entertainment of sorts. Of course todays CPI report that was ‘on forecast’ gives the FOMC cover to raise only 25 basis points or maybe none at all. We will see what the producer price index comes in at tomorrow–PPI is forecast at up .3% versus .7% last month.

Interest rates are spring back up with the 10 year now up 12 basis points to 3.64% while the 2 year treasury is up 31 basis points to 4.34%. Guess folks think the bank thing is over–but probably not. Regulators are swarming all over the banks right now most likely and it wouldn’t be a surprise to see them seize a few more–you know they are out there.

In the meantime we have banking and insurance issues bouncing nicely higher–folks are likely looking for exits on some of these issues–folks that caught the falling knife yesterday may just be looking for a ‘trade’–a quick profit and there is nothing wrong with that move at all.

Looks like we have ‘cool heads’ in the room as I survey the comments–mostly in the Sandbox Page – that is great to see.

Banking Issues Bouncing Sharply

Just scanning the banking issues I see they are bouncing relatively sharply this morning–up 10% to 20%, but of course it is likely an overreaction, just like the selloffs of the last couple of days were overreactions.

Yesterday we saw a relatively sharp bounce in banking preferred issues during the course of the day–for instance the Customers Bancorp CUBI-F issue closed at $18.10 after being as low as $9.60. It is plenty painful to hold through a day like yesterday-but one has to ‘grin and bear it’. The bounces like we have seen are the times to ‘rebalance’ if you have to do it. I suspect we will see some further losses as folks move to that rebalanced position.

As the current crisis gets more in control we move on to (quickly I hope) changing rules and regulations. I know most of you know that the accounting for portfolio losses in the ‘hold to maturity’ category is highly suspect and this needs to be addressed. As xerty pointed out a day or two ago the banks have ‘fake’ equity numbers under current rules since their hold to maturity losses overwhelm their equity. So we will see changes in these accounting rules and likely huge sales of common share to build equity. It will be interesting to see how fast this proceeds and whether the solution actually fixes the problem.

Today we have equity futures up about 1/2% and interest rates are bouncing quite sharply with the 2 Year treasury up 24 basis points to 4.22% while the 10 year treasury is up 3 basis points to 3.61%. These rates have imploded the last couple of days so once again a bounce is to be expected.

Buckle up!! We have the consumer price index (CPI) being released in about an hour. The forecast is for a year over year number of 6% (compared to last months 6.4%) with the core rate at 5.5% versus 5.6% last month. A hot number will back the Fed into the corner relative to the next rate hike as they will need to hike rates–but of course this may conflict with the need to reduce rate hikes to stabilize the banking system–this should be interesting.

I see that Nomura Securities has now forecast a rate CUT at the next FOMC meeting and elimination of the quantitative tightening (QT) Fed balance sheet runoff. Pretty extreme and I think pretty unlikely. Right now I am guessing a 25 basis point hike with no change to QT–but we have data in an hour that may change everyone’s perspective.

I am looking at the Merchants Bancorp (MBIN) preferreds for additions to my current very small position. I will not be buying now as it is too soon for me after a crisis, but the company did pique my interest with their press release last night so I need to dig deeper. I will not be buying anything today.