Yesterday turned out to be more negative than one could have anticipated. After interest rates jumped higher last week on economic data and Fed yakker talk the PMI (purchasing managers index) came in higher than forecast yesterday–let’s face it the economy is simply stronger than anyone anticipated.
‘Don’t fight the Fed’. I had raised some cash in the last month–and of course if we would have raised more we would be better off since yesterday was very negative with the average $25/share off 1.5%—and with the Fed no doubt planning ‘higher for longer’ we will likely see more days like yesterday soon. “Don’t fight the Fed’–no use rushing to deploy the dry powder. I am a poor market timer so I tend to ‘leg in’ and out of positions–buying numerous times in a given security, but it seems obvious that now is not the time to do any buying–just wait and get paid for waiting.
Yesterday I mentioned the Federal Agricultural Mortgage (AGM) preferred issues were on my watch list–finally they dropped a couple percent yesterday–not buying yet. Others I am watching include the Spire 5.90% preferred (SR-A) issue which fell 2% yesterday to $23.93. All the CMS Energy baby bonds all of which fell 2%ish yesterday. I already have positions in these issues. The MGR 5.875% baby bond from Affiliated Managers (AMG) fell over 3% yesterday-this is now down over $2/share in the last 2 weeks.
So the list of potential buys is growing rapidly–very rapidly. I will not be buying a thing for the foreseeable future–don’t fight the Fed means it may be a couple months before we get back in the sweet spot to buy.
Investing is a mental game–and mentally everyone is worried this week. Of course not much has really changed since last week–but all the folks who were deniers of higher interest rates last week have now done an about face to say ‘higher for longer’. Certainly we can see they are much higher today with the 10 year treasury yield ramping up to 3.93%–up 10 basis points. Finally all the Fed yakkers are getting to folks.
Right now the average $25 share is off almost a 1/2%–surprisingly it isn’t worse.
I’m doing what I always do – watching for potential buys – but not very motivated to pull the trigger since we are being paid to be in cash and there are no real ‘bargains’ out there at this moment.
I am watching the Affiliated Managers (AMG) baby bonds and the Federal Agricultural Mortgage (AGM) preferreds. I had decent positions in these issues up until a couple weeks ago when I trimmed off a bunch to capture some nice 10-12% capital gains–now I am looking to re-enter when they set back some more.
The MGR 5.875% Affiliated Managers baby bond has set back 6% in the last 2 weeks from up above $25 not sure at what point I buy more of it–no rush–maybe a dollar lower would be a decent place to enter a Good Til Cancelled buy order.
Futures markets are looking pretty soft this morning with both the DJIA and S&P500 looking down almost 1%. Interest rates are popping a bit with the 10 year treasury yield at 3.89% at this moment (6 a.m. central)–if economic data shows strength this week we may well see the 10 year yield over 4% once again.
Overall last week was a quiet week for equities as the S&P500 fell by 1/4%, although the index was up as much as about 1 1/2% mid week–with the CPI and PPI both being reported in the same week things ended up somewhat ‘calm’.
The 10 year treasury yield moved 8 basis points higher on the week to 3.83% from the close the previous Friday. On Friday the yield had hit 3.90% before backing off into the close. Economic numbers continue to be somewhat stronger than anticipated–in particular employment related data is not showing substantial weakness. Time and time again Fed chair Powell has reiterated that he watches the employment numbers closely.
Once again we will have plenty of economic news this coming week. We have the Q4 1st revision of GDP–likely not a market mover. We have FOMC minutes on Wednesday–and while this is old news it almost always moves markets as participants parse every single word. On Friday we have the personal consumption expenditures index (PCE) being released and the Fed chair has indicated that this is his favorite inflation data.
The Federal Reserve balance sheet assets fell by a giant sized $50 billion. Of course it was flat the previous week so a big drop was going to come sooner or later.
The average $25/share preferred stock and baby bond fell by just a bit last week – 3 cents. Investment grade fell by 9 cents with banks off 10 cents. mREITS jumped 18 cents with shippers up 19 cents. So quality issues down and high yield junky issues bouncing.
Last week we didn’t have any new income issues priced.
I see that the 10 year treasury yield is now at 3.89% after closing yesterday at 3.84%. The Producer Price Index came in a bit hot yesterday, but it wasn’t until later in the day that equities reacted negatively to comments from Fed yakkers Bullard and Mester that they were in favor of 50 basis point rate hikes (they are not voting members of the FOMC committee this year).
Today we only have the Leading Economic Indicators (LEI) to deal with at 9 a.m. (central). Of course now every piece of news is scrutinized very closely and markets can react to news that in the past was ignored. Any news that shows the economy is stronger than anticipated is going to keep nudging interest rates higher.
Yesterday once again I did nothing at all–just watched. While income markets have been red I noticed that I had quite a few dividend and interest payments hit on the 15th (at least at Fido–eTrade is a day later) which helped brighten the month.
Did you see the Scorpio Tankers (STNG) earnings report yesterday? All I can say is WOW. Incredibly strong earnings–$12.66/share earnings for last year! I don’t invest is shippers, but certainly they are money good (for now at least)
Monday we have no stock or bond trading for Presidents day.
Every week we have at least 2 days with significant economic news and of course today is one of the days.
In days and years of the past the weekly initial jobless claims was just a number no one paid much attention to–now we are searching for signs of weakness in the economy and the Federal Reserve has targeted employment as one of their key data points. Given the number of job openings (11 million) it doesn’t seem like we are going to see weakness anytime soon. Claims are estimated to be at 200,000 last week versus 196,000 last week.
Also we have the producer price index (PPI) being released – with the forecast at .4% versus -.5% last month. On top of this we have building permits and housing starts being released. Tomorrow we have leading economic indicators (LEI) with the forecast at -.3% versus -1% last month.
This morning I see interest rates are flattish at around 3.8% versus yesterdays close at 3.81%–I’m hoping that the PPI is at forecast–upside surprises could kick rates up a few more basis points. Equity futures–which are near meaningless prior to economic news are essentially flat.
Did you see the earnings report from lodging REIT Hersha Hospitality (HT)? Pretty darned good–you can see them here. I have little allocated to the lodging REITs–but certainly there are plenty to chose from out there.
Yesterday I did nothing – which is the norm in recent weeks – I looked at some CDs and some agency bonds, short term of course. I am not too motivated to pull the trigger on more of these given the 4.5% or so I get on some money markets
