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Category: Economic Opinion

Confusion Continues–and Now We Have a Potential Shutdown

Markets continue to move in a manner indicating no one knows for sure what is going to happen in the weeks ahead. As if we didn’t have our hands full with tariffs as well as many geopolitical events we now have the potential for a government shutdown next week.

In more normal times one could simply yawn about the government shutdown I think it is wiser at this time to pay attention. It would seem to me that with all the vitriol in the capital this shutdown could go longer and have more noticeable consequences.

The 10 year treasury yield is trading lower once again today in the 4.18% area–helping to give just a tinge of green to income securities. Economic data–the institute of supply managers data–weak–except for the price reading which as hot.

I hate the uncertainty–absolutely hate it, BUT I have to deal with it just the same. Since our portfolios are giving us a respectable return (certainly not a super duper return) I guess I will mostly watch the drama unfold.

We ALWAYS Have to Be on the Watch

Here is a Wall Street Journal article that is simply meant by me to pass on items I find today–of interest to me, but maybe not to you.

The article deals with structured finance, including CLOs (collateralized loan obligations). Given that I have exposure to this sector I like all opinions.

Here it is. It should be accessible to all.

Inflation Worries (and thus Interest rates) Put the Hammer to Stocks

The 10 year treasury has moved higher today–up to 4.69% after the release of the Institute of Supply Management (ISM) report showing strong performance in the service sector. The pricing index showed a sharp increase which put the hammer on equities. The report is here. Normally these reports don’t represent importance–but as always, subject to change, so now they are important.

JOLTs (job openings and labor turnover) was also released and the numbers were much stronger than forecast with about 8.1 million job openings versus a forecast of 7.7 million and last months reading of 7.84 million.

Preferreds and baby bonds are off a bit–although thus far the damage is minimal.

Drifting Into 2025

Markets are red today–but generally it is a very orderly red move. The S&P500 is down about 1/2%, but has been trading at this level for a few hours. Seems that the ‘traders’ are fighting over nickels and dimes–all the real buying and selling is done for the year–no big money is waiting in the bushes to snag a bargain at 1 p.m. (central) on New Years Eve.

For myself I have just been pondering a realistic approach to 2025. By realistic I mean expectations of what a conservative guy like me can expect to garner in gains (I don’t plan for losses–I don’t invest to lose money so I am not going to plan on it). I did settle on a lowly 6% target for 2025–down from what has been my forever target of 7%. It is just logical that with a bunch of CDs and money markets funds at 4.xx% and a bunch of high yield issues in the 8% area that 6% the right realistic target. Of course I do remain exposed to some perpetual preferreds — although at a muted level from few months ago so I have some downside and upside potential.

Now given the high level of uncertainty in my crystal ball I am not going to even try to plan for anything except the 1st quarter of the year. For the 1st quater I am looking for the 10 year treasury to trade in a range of 4.25% to 4.75% as economic data remains relative strong–i.e. 2% GDP growth. Employment may also remain pretty stable as data shows the consumer continues to run up their credit card tab. Inflation remains at the current levels–plus or minus .1 or .2%.

So the big question I have–and which is unknowable is will the congress give any signal whatsoever that they will reign in spending? I have my doubts-BUT any real signal that they will lessen the deficit would be welcome in a big sort of way—equity markets spiking higher and interest rates moving sharply lower. Is this even possible? I have no earthly idea–but I do foresee some real battles which may upset markets.

Happy New Year to all!!