Author: Tim McPartland

So it is 40 minutes until the FOMC interest rate announcement–it would be a real shocker if it was anything except ‘no rate hike’. Highly likely the wording of the announcement will be something like ‘while it appears some economic data is softening, employment remains strong and inflation continues to run above our 2% target rate so we stand ready to further hike rates if necessary’.

Then at 1:30 p.m. Powell will take the stand and all questioners at the presser will try to get him to commit to some sort of timeframe for rate cuts–only someone very foolish would make that kind of a commitment.

The 10 year treasury is off 4 basis points at 4.16%–while equities are about as flat on the day as is possible. Certainly both of these will have knee jerk reactions when the announcement is made–courtesy of the algos taking control of markets. In a couple hours we will know how ‘real investors’ react.

So I am watching my charts closely (not for any reason except to see the likely overreaction to the announcement). Buckle up!! Back to some level of normalcy tomorrow.

It’s quite funny to see the expectations of folks – they really, really want Jay Powell to say during his 1:30 p.m. (central) press conference that they have a target date for lowering interest rates. Surprise–it ain’t going to happen. While much economic data shows that we might have a tiny bit of softening–employment in particular is hanging tough.

So today we have the conclusion to the FOMC meeting with an announcement of policy changes at 1 p.m. (central). The decision is ‘no change’ in the Fed Funds rate–the statement will be ‘we still have work to do’. Yesterday we essentially had no change in the consumer price index (CPI) –why would Powell announce ‘victory’. Last weeks employment numbers showed unemployment falling to 3.7% from 3.9% and we still continue to create plenty of new jobs month after month.

Also today we have the producer prices index (PPI) being released in 45 minutes which will add a little intrigue to the mix.

Right now equity markets are slightly green and the 10 year treasury is trading right around 4.18%–down a couple basis points from yesterdays close. Honestly markets have been trading in a goldilocks fashion – we’ll have to see how long this continues before the ‘tension on the tape’ breaks hard one way or another.

As I mentioned I bought a small starter position in PennyMac 8.50% Senior Notes (PMTU) with a short maturity date. This fits right in my wheelhouse (a balance of safe issues with modest yields and mid level quality with high coupons and yields)–at 8.5% it provides a lift in the portfolio toward my 7% overall target–and share price movement should be minimized with the shorter maturity date.

I have my eye on a mid level quality security this morning with a 8%+ yield to maturity–if I can get it at ‘my’ price I will be a buyer this morning–more to come on this one.

Yesterday once again the S&P500 moved higher–certainly at a modest pace, but higher just the same. On one hand we have a slowing economic picture–at least to a minor degree which markets want to see, but on the other hand a slowing economy indicates reduced corporate earnings. Interest rates which are off the high are still very elevated and marginal companys with lots of debt are being crushed–2024 will be an epic year in some areas as debt continues to be refinanced at higher rates. No doubt the equity markets are priced for perfection–a soft landing is priced in no doubt.

Interest rates are off a little this morning with the 10 year treasury at 4.19%–down about 5 basis points from the close yesterday. We have the consumer price index being released in 45 minutes–and expectations are for the headline number to fall to 3.1% from 3.2% a year ago. The core rate is expected to remain at 4% which is flat to the last reading. No doubt deviations from expectations have the potential to move markets substantially.

Yesterday brought a little pain to my portfolios–nothing drastic, but red just the same. No real reason for the move, but folks are probably weeding out some of their losers for end of year tax reasons.

I have been adding lots of issues to the Master List which is here. Right now I am adding the ‘illiquids’ – mainly $50 and $100 issues (they are on a separate sheet right now). In fact as I was adding the Connecticut Power & Light issues (all $50/share issues) I decided to test the liquidity and entered an order for a few shares. Spreads (bid/ask) are pretty wide and with minimal trading my order did not execute–maybe I’ll try again today. With the exception of the Tri-Continental 5% preferred I have little experience with the illiquids and now with current yields over 6% they are interesting–in a modest sort of way.

Well let’s buckle our seat belts–and hope we don’t need them for the consumer price index (CPI) number.