An hour ago we got a softer than expected reading on the leading economic indicators from The Conference Board. The reading came in at a -1% for December versus expectations of -.7%. So the indicators are down 4.2% over the course of the last month. On the other hand ‘coincident’ indicators rose a tiny amount and they are up 1.4% over the last 6 months.
The 10 year treasury was climbing into the 3.54% area, but has now backed off to 3.50% with the soft data.
I am once again showing a small amount (+.1-.2%) of green in accounts and am more than satisfied with any capital gains at this point in time–dividends and interest will hit in about a week which will give a modest boost to accounts–January is not a large payment month.
There is no more economic news today and I don’t see that there are any Fed ‘talking heads’ out there speaking maybe it will be quiet from here on out (who really knows).
Here we go again–can the rally in stocks and bonds continue after taking a tiny breather last week? At this moment equity futures are darned near flat.
Last week the S&P500 fell by less than 1%–closing at 3972 which was 27 points below the close of 3999 the previous Friday. The index was off about 3% until Friday when markets rallied about 2% –based on no particular news.
Interest rates, as displayed by the 10 year treasury, closed at 3.48% on Friday after trading as low as 3.37% on Thursday. The closing yield was 3 basis points below the previous Fridays close on 3.51%. The slowing of retail sales, as reported last week, shows the economy potentially slowing with slowing inflation–a decent recipe to keep rates from spiking too much higher. This week there are plenty of economic reports which may move markets.
The Fed Reserve balance sheet showed a reduction in assets of about $20 billion last week. We are now at $8.49 trillion which is down from a record high of $8.97 trillion—guess we have quite a ways to go—just so we get it low enough so there is dry powder for the next quantitative easing cycle–whenever that may occur.
Last week the average $25/share preferred or baby bond continued higher with a gain of 28 cents–most of the gains occurred in the earlier part of the week. Investment grade issues rose 34 cents, mREIT issues rose 33 cents, CEF issues rose 17 cents and shipping issues rose 25 cents.
We had no new issues priced last week.
The previous week we had the new Redwood Trust 10.00% fixed-rate-reset preferred begin to trade and in spite of the very high coupon the issue closed at $24.85. This issue remains trading on the OTC market.
I am curious what everyone is up to – generally speaking. Are you buying? Booking some profits? Or simply mainly holding?
I have noticed a couple ‘schools of thought’–1 school is that prices of preferreds and baby bonds have risen ‘too far, too fast’ and some profit taking is in order with the hope of rebuying at lower prices. The other schools is simply more of a ‘buy and hold’ strategy–watch currents investments and collect the ‘spoils’.
My own method now is to try to trim around the edges a bit and buy the top quality I can with proceeds of the trimming. Of course the top quality issues have risen quite a bit in the last month or two and thus are no longer ‘raging’ bargains. This leaves me in a bit of a conundrum thus the trimming is pretty minor. I have historically been a bad market timer and once I exit I don’t get the cash reinvested in a timely fashion thus hurting my dividend and interest flow–of course the negative of having too much cash is cushioned by the fact that we now receive a relatively generous bit of interest in money market funds.
I did trim the Eagle Point Credit 6.50% term preferred (ECCC) on Friday–I had a bit more than a full position and with the net asset values (per common share) of the specialty finance company’s getting hammered pretty good recently I want to observe their coverage ratios a bit in the potential coming recession. These company’s have been excellent at raising new money through common share sales and thus the coverage ratios have held up–but if we get a true recession will they be able to raise cash in an adequate fashion to maintain coverages?
I now have around 6% cash in our accounts so not too harmful to cash flows–but should I be raising cash and looking for a better opportunity?
After weeks of decent gains it seems like maybe we move forward for the next 10 days with dependence on dividends and interest to move our account balances higher. Interest rates may well be at a level which will be sticky until the January 30/February 1 FOMC Meeting. This morning we have rates up 7 basis points to 3.47%.
Today we had no real economic news to move markets–but Monday we do have the leading economic indicators for December and on Tuesday we have the S&P manufacturing and services indicators. Each of these are semi-important numbers and will figure into the Fed rate hike on 2/1–although this hike is getting pretty well baked in at 1/4%–personally I thought 1/2% would be the right number based on strong employment–but I am very much in the minority on that number.
Today I am going to pull up my accounts and go through them and make sure I am balanced the way I want to be balanced. I have some full positions in some dicey issues that I may want to shift to some higher quality issues. For instance I hold plenty of the Eagle Point Credit 6.50% term preferred (ECCC) which has gotten a decent bounce back this month and I may want to trim it a bit and move it to one of the community banks–not sure what I will do.
