Author: Innovative Income Investor

After a tiny move lower yesterday in stocks the futures market is showing a strong rally this morning with the S&P500 up about 3/4%–tech shares are even stronger as NASDAQ futures are up 1.4% . When these trends are strong there is always a reason to drive prices higher (or lower)–today Micron Technology (MU) is leading the way higher and China has announced large stimulus packages for their economy. As I have mentioned before strong trends tend to move for longer periods of time than one might expect–seldom are the trends reversed instantly.

The 10 year treasury rose by 4 basis points yesterday–now at 3.78%–around 10 basis points higher than when the Fed funds rate was lowered by 50 basis points. This movement is most interesting to watch and as the U.S. Treasury continues to issue massive levels of debt one has to question whether we will see any movement lower on the longer dated government bonds. For certain we will most certainly continue to move the yield curve back into a more normalized pattern.

The strong moves higher in preferreds and baby bonds have taken a pause as prices are level with the close of last week–this particular trend (higher) may be coming to a conclusion, but one never knows. Investors with decent positions in these securities will just have to sit back and collect dividends and interest.

Tomorrow we have the personal consumption expenditures (PCE) numbers. being released. There numbers has the potential to move markets , but only if the report shows inflation movement way out of expectations–and only for a day or so–market trends are likely to continue.

I have never been a major fan of mortgage REIT preferreds, but in the last 3 to 6 months I have started to gain a little comfort with them and now own a number of issues. Actually whether I like them or not they offer some of the best yields out there and I can see myself buying more shares—not this week, because I am out of the office, but next week almost undoubtedly I will initiate some new positions. Note that the positions I currently hold are very modest in size so even doubling this sector would not be ‘crazy’.

I have always had a 7% return goal and the last year to year and a half has been ‘easy peasy’–even holding substantial CDs and money markets investors were able to soundly beat 7% as the capital gains on perpetual (in particular) have been fantastic. But now the real work begins and of course much of that will depend on what we see interest rates do (short and longer term rates). We might be able to forecast Fed funds with some amount of confidence–but longer term rates are a bit of a wildcard.–i.e. how are markets going to react to the never ending supply of Treasuries?

So I am moving into more risk–but as conservative as I am I will continue to hold SOME lower yielding money markets and even CDs regardless of lower rates. Maybe I will end up adjusting my goals–but it is way too early to do that–way too early to think one can predict, with certainty, where markets are headed

Are moving to Riskier holdings? How do you feel about that?

I am away from my desktop computer which is normally how I publish ‘headlines’ each night. I will not have access to the desktop computer all week so will not be publishing headlines this week–but will start again next Monday as normal.

I have been quoting an incorrect 3 month SOFR rate on the website. I have been quoting a backward looking average rate—when I should be looking at a forward looking rate. Sorry for being wrong on this–not the 1st time for sure.

There is a substantial difference in the 2 rates–like 60 basis points. At this moment he forward looking rate is at 4.66% and this is the rate that should be used for floating rate preferreds and baby bonds.

Finding the forward looking rate is difficult–I found it on Bloomberg TV, which is where 2whiteroses suggested one could find it. I didn’t find it elsewhere although if one wants to pay a subscription fee there are other spots.

Thanks to those that discussed this recently which has helped clarify this issue.