Author: Tim McPartland

Today we have no equity trading, but we do have treasuries which will be trading until 1 p.m. (central) so we will see what treasury markets think of the PCE numbers. Markets have been expecting the core component to be up 2.8% year over year with the headline number index at .4%–up from .3% last month.

I don’t think the direction of the Fed relative to the Fed Funds rates will be swayed by this single number–they are on hold for now. But the length of time before we see a fed funds rate cut could be altered.

We could get a big reaction in the treasury market to the PCE. The 10 year treasury closed at 4.21% on Thursday we’ll watch for reactions.

We have just gotten the release on the PCE. The headline number is .3% versus expected of .4%. The core price index is 2.8% right on forecast. Incomes are a little above forecast while spending is way above forecast–running up the credit card debt I guess.

Seems fairy neutral overall–we’ll watch interest rates through the day and see where they head.

Equity futures are quiet as we await the most recent economic news. We have the second look at 4th quarter GDP and initial jobless claims at 7:30 a.m. (central)–then at 9 a.m. we have pending home sales and consumer sentiment. News that previously was kind of unimportant is now parsed 16 different ways. Yesterday equities went parabolic the last 40 minutes of the day–the conspiracy folks out there immediately suggested a leak of today’s data–well we will see what the numbers turn out to be in about 90 minutes.

The 10 year treasury is now at 4.22%–pretty quiet and still in the range (4.15% to 4.35%) where it has been for the last 2 weeks. We could see this range broken tomorrow, when equity markets are closed, when the personal consumption expenditures (PCE) are released.

Tomorrow equity markets are closed for Good Friday so we can all enjoy a 3 day weekend, although treasury markets are open until 1 p.m. (central) so we could see some interest rate movements.

Finally last night we got pricing on the new Eagle Point Income (EIC) term preferred stock issue. The issue priced at 8% for 1.22 million shares plus 183,000 over allotment shares. The press release is here. I already own the 7.75% term preferred (EICB) issue which is trading at $25.10 – we will see if it is worth the trouble of swapping issue for issue.

When I have cash in my accounts I almost always feel compelled to buy something–preferred stock or baby bonds, but now for the first time in years I have jettisoned that ‘need’. When my money market is paying me over 5% and CDs are 5.3% for 3 month, non callable issues why should I feel I just have to buy something paying me 6-8% and adding substantial risk to the portfolio. Part of this is driven by my belief that interest rates, on the long end, are not going to fall much–supply of new treasury debt will at some point in time overwhelm demand–then we will have real interest rate problems.

Some will recall that I mused a few months ago on movements in the long end of interest rates–the 10 year would drift lower into the fall and at that time rates would move higher–now I am worried that markets may have the ‘ah ha’ moment sooner than the fall. An obvious item which can change the scenario is that the Fed discontinue QT (quantitative tightening) which would mean the Fed would not runoff the balance sheet–the balance sheet would remain at $7.5 trillion or even move higher if they were forced into quantitative easing (QE). The other item which could move the needle is that the congress act to reduce spending–but we all know that is highly unlikely (not inviting political discussions here). The bottom line is that I am putting a premium on safety–if we get a ‘ah ha’ moment investors could get whacked.

So with plenty of cash in our accounts I have added CDs again–but leaving some cash in case I find something to buy – a term preferred or maybe a short dated baby bond–but at this point in time I won’t blast all the cash into preferreds or baby bonds–nor am I selling anything. All this is subject to change of course. We’ll see.