Author: Innovative Income Investor

Yesterday I was a buyer, as I had mentioned I would be, of the Priority Income Fund 7% term preferred (PRIF-D) at a price of $23.65. The issue currently has a yield of 7.4% which meets my ‘hurdle’ of 7%. This is the second Priority Income Fund issue in the portfolio–I also own the PRIF-H 6% term preferred issue (PRIF-H) . I made the change to capture a higher current yield and yield to maturity. This continues my slow shift into higher yielding issues–from CDs, Treasuries and money markets.

Well equities are trading very quietly this morning–apparently because we are on ‘Nvidia Watch’. The company reports earnings tonight–I really hate that markets trade simply on the performance of 1 company. I even hate that markets trade on the performance of 7 companies (tech), but this is the way markets move and it has certainly been highly profitable–you live by the sword and you die by the sword and the opposite will happen at some point in time.

The 10 year treasury continues in a narrow range with the yield at 3.81%–this will continue until we see some more economic news with the personal consumption expenditures (PCE) on Friday. This number is incredibly important and will no doubt move markets.

Markets have have been absolutely giddy about coming rate cuts –now I hear all sorts of speculation on multiple rate cuts. Investors have a poor record of forecasting interest rates – we haven’t had a rate cut yet this year and yet when the year started forecast were for 6 cuts.

This week on Friday we have the personal consumption expenditure (PCE) being released and then next week on Friday we have the August employment numbers being released. I think these are the 2 most important numbers we will see prior to the FOMC meeting which starts on September 17th–these will drive the size of the rate cut. I believe that a 1/4% cut is going to happen with what we know now—no matter what the data says–Powell has once again backed himself into a corner with his dovish tone of late–certainly markets expect a cut as the CME Fed watch tool is at 100% with 25% expecting a 1/2% cut. For a 1/2% cut to happen we need to see weak employment. If we were to see a strong bounce back from the weak 114,000 new jobs created and 4.3% unemployment rate of last month the big rate cut is unlikely. Well we will all have to continue to speculate for another 3 weeks until the meeting.

Equities continue their march higher –and fortunately income issues have been nice gainers right along with common shares. This in spite of interest rates being stuck in the 3.80-3.85% area. So the big question is how much will interest rates on longer dated maturities fall when/if the Fed Funds rate is cut? The supply of debt from the treasury remains massive and this will continue for as far as the eye can see.

Today I will be a buyer of a term preferred security–continue to work my way higher in allocation to preferreds as other competing coupons fall. At this moment my Gabelli Treasury Money Market (GABXX) is giving me the best short term coupon at just over 5.20% and I continue to have sizable holdings there–I expect that to fall with Fed Funds rate changes next month. CDs are in the 4.95% area for 3 month paper–not overly attractive, but not the dregs either.

Last week the party just kept rolling on and Jay Powell contributed mightily to the ever higher S&P500 as he continued to speak in a dovish manner. His latest speech at Jackson Hole all but promised a rate cut–although the timing and size remains a mystery.

The S&P500 moved higher last week – over 2% with a range of 5525 to 5643. Of course Friday was the big gainer as markets reacted to the Fed Chair speech.

The 10 year treasury was kind of quiet on the week with a range of 3.79% to 3.90% and closing the week near the low of the week at 3.81%. When/if we see Fed funds rate cuts it will be interesting to see how long rates react–or if they do react given the massive issuance of debt by the treasury.

This week we have a super important piece of economic news being released on Friday in the Personal Consumption Expenditure (PCE) numbers on Friday. We do have many other reports being released included GDP on Thusday–but this is the 2nd read on GDP so no real surprises should occur with this number.

The Fed balance sheet assets fell by a giant sized $38 billion last week to $7.19 trillion. Another couple of months and we will be under $7 trillion which I didn’t think we would see given the huge debt issuance from the treasury. We now have headroom for a reversal of quantitative tightening in the event of a black swan event.

Last week was a good week for the average $25/share preferred and baby bond as the average issue rose by 22 cents. Investment grade issue rose 26 cents, bankers rose 24 cents with CEF preferreds up by 6 cents, shippers rose 8 cents and mREIT preferreds rose 19 cents.