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Awaiting Inflation Numbers

Always waiting on something–this time the producer price index (PPI)–interest rates are already up and trading around 4.2% based on the hotter consumer price index announced on Tuesday. So far no real damage done to income issues, but who knows when markets will react. We also have retail sales announced today–a measure of consumer health of sorts–whether equity markets care about any of this is anyone’s guess–‘all news is good news’ seemingly and futures are up decently this morning.

Yesterday I bought additional shares in General American Investors 5.95% perpetual preferred (GAM-B) @ $25.06. This is adding to the safety side of the portfolio–a CEF preferred with over 700% asset coverage. GAM is a plain vanilla CEF owning level 1 assets (level 1 assets are securities where prices are directly observable i.e. stocks and bonds). The portfolio is balanced between high quality issues at 6% or so (on cost) and more marginal issues in the 8% area—all in all 7% more or less. Of course this is just the stocks and baby bonds we own–bunches of the portfolio is CDs etc in the 5-5.6% area.

I mentioned yesterday (or was it Tuesday?) that the current market has been most pleasing to me. I can buy investment grade issues in the 6 or even 7% area, I can get junkier (but decent) issues in the 8% area or I can choose to be in money markets or CDs at 5-5.6% area. For a conservative investor this is the best selection of yielding investments we have seen in years and years. This doesn’t mean I am a super bullish person–like of all of you I see the challenges in the economy and certainly in the government. The last time I didn’t worry about markets was on the Thursday before black Monday in 1987—and then Monday came and all of us were ‘educated’ to what ‘could’ happen. I have found that you can worry–but at the same time understand that burying your money in the backyard is not a viable option.

So I am looking for more issues to buy. I a pondering a taste of one of the Priority Income Fund term preferreds and also 1 more BDC baby bond–I looked at Whitehorse Finance baby bonds–they are OK, but their net asset values have been falling at a rate higher than many competing company’s – we’ll see. Many, many CDs maturing tomorrow and then again on the 22nd–some $$ will get ‘rolled’, but some will need a new home.

5 thoughts on “Awaiting Inflation Numbers”

  1. I’m surprised that preferred stocks haven’t shown more downward movement with 10 yr Treasury showing
    4.3 this morning. I think it’s because demand for them has been strong from people chasing yield. Stocks with a yield of 6% and higher at par have had more interest shown. The preferred that had yield at 4% average when issued are getting less interest and even being sold at market. This is allowing a opportunity to pick up some of these lower yielding stocks at a 7% yield on cost if your patient and put a GTC order out there

  2. Williams Sonoma reported doing “ok” last year and for the Christmas season Stock jumped $42.00 on the news. I didn’t see what was so great except investors relived it wasn’t worse and hoping this future year will be better. Dick’s Sporting goods did even better with good numbers. What could be said is retail seems to be chugging along. Yet Dollar Tree reported terrible numbers and is going to shut 970 stores. The lower income part of the economy doesn’t seem to be doing as well with the higher cost of everything. Still a mixed bag of news and inflation numbers came in slightly higher so is the Fed winning the fight? I think we are all in a wait and see mood.

    1. Anecdotal but it wouldn’t surprise me if Dollar Tree was a victim of its own cost-cutting. At least around here those stores are depressing and poorly-maintained.

      1. Tale of Two Cities for me. One DT is poorly operated with stock strewn over the shelves and slow checkout. The other DT is flawlessly maintained, everything in stock and where it should be and quick checkouts. The differences may be the result of store managers or division managers, local worker shortages or the budget assigned to the store.

        Disclosure: dedicated dollar store shopper.

        1. I have to agree with you Bear
          Dollar stores in silicon valley are all over the map. Some are well maintained and stocked, others look like a hurricane blew through.

          Service is generally slow, but that is mostly labor shortage/dislocation (IMHO). California has a high minimum wage ($16/hour). Many cities have higher minimums (kind of a contest for a while about which city could make a big press announcement about having a higher minimum than their neighbors), which distorts the market because the wage rate changes every couple of miles. However, the big “overlay” problem is that our idiots in State government set a $20 minimum wage for fast food workers (because they protested, and the idiots can’t just ignore a protest), so all low wage workers want to work fast food (and who can blame them – 25% higher wage), making every other employer scramble.

          Crazy thing – it came out recently that Panera Bread (which has the governor firmly in its pocket) got itself out of the $20/hr labor category. It had the governor insert an exemption in the law for restaurants that make/sell bread as a stand-alone thing. Gotta love our corrupt governor (he also does lots of dirty favors for Pacific Gas and Electric (PCG), our power utility).

          Personally, I expect that exemption will spur the introduction of the McBread at McDonalds (and similar “innovations” at other fast food chains).

          Ahh, living the life in the peoples republic of California

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