Author: Tim McPartland

Depending on your source we have at least 4 – and as many as 7 Fed yakkers today.  Unlike past times when there were disagreements in policy I think the Fed folks will generally be in agreement that another ¼% rate hike is needed in May–and I think we will see that hike. 

Today we have economic news that could move markets.  We have the weekly 1st time unemployment claims at 7:30 a.m. (central)–forecast is for 244,000 versus 239,000 last week.  Continuing claims were at 1.81 million last week–and both new claims and continuing claims have been climbing slowly.  Also at that time we have the Philly Fed Manufacturing number–forecast is -20 after a -23 last month.  Remember we had a huge bounce higher in the New York manufacturing survey recently so we will see if these are in sync–or just pure baloney numbers.  At 9 a.m. we have leading economic indicators (LEI) forecast at a -.7% versus -.3% last month.

Last night we had earnings from Zion Bancorp (ZION)–deposits fell by 16%, but commercial loan losses were manageable and the company pointed out their commercial loan portfolio is well diversified by sector and geography.  I hope that all of these regionals are managed by competent folks as they have their job cut out for them especially if the recession arrives.  

I did nothing yesterday–not even opening accounts until after market close.  With my current portfolio composition I see a very much reduced amount of movement on a day to day basis and that is comforting.  We’ll see how that changes as CDs and treasuries mature–my laddered holdings range mostly from 3 month to 3 years with maturities virtually monthly–although I did go ahead and lock down small CDs as far out as 5 years.

Well let’s get this day going–equities looking a bit soft, but who knows whether that is how the day goes.

Interest rates continue to march higher with the 10 year at 3.63% this morning and the 2 year at 4.27%.  Yesterday, and for the last week or two, we have had some very calm equity markets irrespective of the move higher in interest rates–this won’t last forever–we will reach the point soon when common equities AND preferreds and baby bonds will react in a negative way.  We had the Silicon Valley Bank crisis in early March and income issues fell very hard.  Since mid March preferreds and baby bonds have climbed 4% from a panic selloff–more than ½ of losses have been recouped–how long will this bounce continue?  My guess is not much longer.

Yesterday, as I mentioned I added a very small amount of 3 regional/community banks preferreds.  I added to Merchants Bancorp, Bridgewater Bancorp and Heartland Financial.  These were all small positions and remain small, but their 7-8% current yields help to balance the 5% CDs and treasuries.  All of these report earnings next week so I will re-evaluate after we see the latest data.  My laundry list of holdings is here.

We had earnings yesterday from bankers First Horizon (FHN), Fulton Financial (FULT) and Western Alliance (WAL) all of which have preferreds outstanding.  As noted above next week Customers Bancorp (CUBI), Merchants Bancorp (MBIN), Bridgewater Bancorp (BWB) and Heartland Financial (HTLF) all report earnings next week.  A few items to note is that most of these banks do not have huge security portfolios thus the discussion of losses on holdings is minimal.  Also I note that we are seeing increased losses on commercial loans and as you might expect banks have had to pay a large FDIC assessment.

Also of interest Lincoln Financial (LNC) and Jackson Financial (JXN) both report in early May.

Big banks US Bancorp (USB) and Morgan Stanley (MS) reported this morning and earnings were good (as expected).  USB did show a jump in problem commercial real estate and I suspect we will see major issues in this segment when (if) we see a true recession.

Today I won’t be making any new purchases–not feeling the motivation today–plenty of dry powder resting in money market at decent rates.

Well Bank of America (BAC) is out with earnings this morning and as expected their numbers were very good–of course I am most interested in the small banks instead of the mega banks.The community/regional banks will pay me 2% more on their preferred issues and I think the risk/reward proposition is pretty good in the 7.5% to 8% current yields.  I am adding a  bit to some of my current regional/community bank holdings this morning–my current holdings are small and my adds very modest. My laundry list of holdings is here. All the banks are listed here.

Yesterday was a quiet, but positive day in equities–perfect for me. My portfolios were green, but flat is ok with me – nice interest and dividend payments coming in multiple times a month.  I really construct holdings for the best yield consistent with my risk tolerance level – capital gains are just ‘gravy’.

While it hasn’t gotten huge amounts of press in the last week interest rates have moved sharply higher–the 10 year at 3.59% is 30 basis points above 10 days ago.  The 2 year treasury note has really zoomed higher–now at 4.18% almost 40 basis points higher.  Of course these rates pale compared to a couple months ago so everything is relative–it has only been 7 weeks since the 2 year was at 5%.

Yesterday we had little important economic news.  Empire State Manufacturing came in very strong relative to expectations, while home builder confidence came in as expected and slightly up from last month.  Today we had housing starts and building permit data being released–housing starts about on target and permits somewhat soft. Likely these numbers are not market movers.

Markets are somewhat green this morning, let’s see if they hold their gains.

Well we had the big banks reporting earnings this morning and JPMorgan (JPM) and Wells Fargo (WFC) both beat forecast as was expected.  I am more curious how the smaller banks are doing–the regional banks etc.  I want to see how the commercial loans are holding up–some of the community and regional banks specialize in multi-family lending–how is that holding up?

Yesterday ended up being a very solid day in the markets–stable prices in equities with interest rates mostly flat.  My portfolios move only minor amounts on days like yesterday- little up or little down–that’s fine since I am not really expecting upward moves in the portfolio, just hope to dodge any major losses.

I am sure most of you that have bought CDs and treasuries (like I have) in the last 6-9 months are very pleased with your interest payments when you look at your brokerage statement.  Seeing a monthly 4 digit interest total is very sweet  after seeing zip the last many years.  Balance these receipts with some solid 6-8% preferreds and baby bonds makes for a great risk/reward balance.  I actually bought a few 5 year CDs in the 5% area – not many, but who knows what the future holds so get a little when you can.  IF we see inflation in the 2% area in a year or two 5% CDs will probably go away, but we shall see.

Well let’s get this day rolling–with futures and interest rates fairly flat we will likely see a quiet day without fireworks–fine with me.