Author: Tim McPartland

Both the S&P500 and the DJIA are up on the day – of course they are as Goldilocks is in the room I guess and investors only know one way – and that is up, up and away. Maybe the continued upward movement is a reaction to the potential settlement between UPS and their workers–which obviously would be a relief to all those addicts of Amazon.

The FOMC meeting is now underway and I can hear Bullard already arguing for a 50 basis point rate hike–‘let’s just hit with two 1/4 point moves at once’ he is arguing.

I see Mike Wilson – the celebrated Morgan Stanley equity analyst has admitted that he was wrong on calling for stocks to go down in 2023 – missed that just a little. Just because he was correct last year in calling for a down market has nothing at all to do with being right for this year – a blind squirrel still finds an occasional nut and certainly these ‘talking heads’ are no better than a bunch of blind squirrels. At the same time we are seeing more warnings about the overvalued markets from JP Morgan – we have so much business news on the boob tube I guess we have to have these clowns blabber to stop from having ‘dead air’.

I am doing nothing at all in the markets. I did see that JP Morgan is offering a 5.50% 1 year CD – callable in 6 months of course – whoops just looked and it is now 5.45%. In theory we should see a CD rate of 5.75% – 5.80% from someone come Thursday. Data suggests that the CD rate increase should be slightly above the Fed Funds rate increase. If we get to that rate I most certainly will by some – how much I don’t know.

Economic news from yesterday and today doesn’t suggest any real distress in the economy–some a little softer than forecast with some hotter than forecast – same story all year long.

With many, many smaller banks reporting earnings in the last week I feel good about the direction they are heading. I have skimmed through a lot of reports and there is a common theme – lower net interest income and higher costs due to increased FDIC assessments. What is not a common theme is commercial real estate loans are going to sink the banks – write downs have been very modest – thus far. I remain of the belief some banks will likely ‘blow up’ in the next year. Some small bank will have made loans of a size and quality that puts their company at risk – small bankers always want to run with the big dogs.

We’ve seen equities move higher this week – to levels that are likely overvalued, but we all know that overvaluation can go on for months and months until the chickens come home to roost.

Interest rates have been pretty steady this week – trading in the 3.83% area now. Economic news on the week has been dovish to interest rates with data showing a little bit of softening, but nothing of substantial softness. Certainly nothing in the economic news will deter a FOMC interest rate hike next week. Housing numbers were soft, but that is simply a supply issue–the days of mid level spec house building are mostly behind us–builders still remember 2008-2010 when so many of them went bankrupt (or nearly so) holding the bag on inventories. Most of the local builders build to order with little risk to their business.

So I am looking at the new Eagle Point Income (EIC) term preferred – just pricing at 7.75%. Assuming I can buy it around $25 I will add a part position–it will help me bring my portfolio into balance (CDs and treasuries versus high yield). Then I will likely be back to sitting on my hands for 10 days as I wait for the Fed and CD pricing reaction–then the end of the month brings more maturities of some holdings. I can envision reinvesting 50% of the proceeds back into CDs at 5.7%–we’ll see.