Author: Tim McPartland

In a couple hours we have the personal consumption expenditures (PCE) number being released and the forecast is for the number (year over year) to come in a little hot. At this point in time any number cooler or hotter than forecast can move markets quite a lot and certainly set the tone for the day. The 10 year treasury yield is down 2 basis points at 4.52%–would be nice to get a PCE number that starts to send the yield back lower.

The S&P500 futures are off about 3/4% at this moment. I believe that this is caused by what is a continual inability of Congress to get their act together and the rejection of the latest CR (continual resolution) last night. As I mentioned yesterday any sign that Congress is serious about cutting spending will be met positively by markets–while business as usual will be punished.

I was noting yesterday that real estate investment trusts (REITs) have been getting slammed–really slammed. The most followed REIT ETF the Vanguard Real Estate Index (VNQ) closed below the year ago level after being up 10-12% just a few weeks ago. As most of you know Brad Thomas created his own REIT ETF in the spring–the net asset value (NAV) yesterday closed 1% below the original issuance price–it goes to show that in investing there are no ‘magic’ formulas and prices move on more factors than fundamentals–if it was that easy we would all be billionaires.

I have been pondering the future–not the next 10 years, but the next 6 months to a year and will have my thoughts on interest rates to publish soon. Recall that I thought the 10 year Treasury yield would fall this year into the fall and then we would see them rise as Congress continued to spend like crazy. In a blind squirrel moment I was correct–probably I won’t have this level of lucky guessing again, but I really need a level of comfort in my own thoughts in order to move forward with my own allocations. Right now I am guessing my 7% target is at risk–I might have to realistically reset to 6%–we’ll see.

Yesterday markets were hammered–BUT it is one day and likely a over-reaction to the FOMC stating they may only cut interest rates 2 times next year. Markets take this as gospel–kind of silly–these words from folks who messed up interest rates for literally years by keeping rates at zero–to think they have a real clue as to what happens next year is only a dream. Maybe they cut 6 times–maybe they don’t cut at all–in a year we will know for sure.

Hopefully folks didn’t panic and start selling yesterday–I know for sure that the seasoned folks reading this didn’t sell–some of the occasional investors that are not seasoned may have panicked and tossed the baby out with the bath water. No doubt there was some pain yesterday, but 1 day doesn’t make a market. Is this the start of something bigger? No one knows–NO ONE. I will play the cards I am dealt and figure out how to address it each day.

As I had mentioned earlier in the week I was frustrated in my attempts to buy the new RiverNorth/DoubleLine 6% term preferred (OPP-C). On Tuesday I did go ahead and establish a small position – small because I want shares a few pennies cheaper–and I will eventually add many more shares. I paid $10.08 (this is a $10 issue) for this small starter position and will update my ‘laundry list’ page sometime today. I also have entered a good til canceled order at $10.02 to try to snag some additional shares.

At this minute (7 am central) we are seeing a bounce in equities – not recouping yesterdays losses by any means, but stability–this should have been expected. Where indexes end the day is anyone’s guess. Will ‘nervous nellies’ take the opportunity to sell into the rally?

Interest rates (the 10 year Treasury) which shot higher yesterday to close at 4.49% yesterday is now trading at 4.52%–this will be interesting to watch. I think any progress made on cutting the future government debt will be met very favorably–continued giant overspending will continue to send rates higher.

Yesterday there was frustration on my part as the website experienced various issues relating to caching. It took a few hours throughout the day to get it rectified. Part of the issue is related to the size of the website—1000’s and 1000’s of pages and it took a new cache add on to rectify the situation. This is another example of how donations from generous folks help to carry the load of the website cost–one can burn through a few hundred dollars real quick when there are issues. We are always extremely thankful for those that donate.

Well let’s get our day going and see where markets take us today.

Well we all knew what the Fed was going to do and honestly about what Jay Powell would say–but I don’t think that most of us knew that the fast money was going to use it as an excuse to sell the hell out of the markets. Normally on Fed day we get big pops both directions for a few minutes after the announcement and then a moderate move in one direct or the other. Today–NO. The trip down was long and steep with hardly a 5 minute respite all afternoon. About a 3% loss on the day. Adding a little insult to injury the 10 year treasury yield closed at 4.49%–up 11 basis points on the day–the highest close since May.

Of course in the income issues it is the low coupon, high quality perpetuals that took the biggest knock. Looking through the investment grade issues I would guess maybe 90-95% RED–some just a few cents, but a lot of them down 1-3%.

Personally I took some losses in all investment accounts–although they were minor–maybe 1/5% owing to having cut back on many issues a few months ago–but just the same no one likes losses. We all know that trying to react on a day like today is a mistake–just sit back and take a deep breath, sleep on it and make rational decision later. I am thinking maybe I have a couple issues to trim back a bit–in particular the 2 Brighthouse Financial issues I hold–on the other hand with investment grade issues with current yields over 7% maybe I will just ‘ride it out’–we’ll see.