Category: Mid Day Ramble

We have lots of forecasters (guessers) that are forecasting Fed Funds rate hikes, pauses or cuts—of course not a one of them has a track record to prove they have a clue as to what is really going to happen.

But today we can see with our own eyes that the 10 year treasury is up another 7 basis points to be trading at 4.92% and there should be no doubt it isn’t pretty in the perpetual preferred and long dated maturity baby bonds. I feel damned fortunate to hold lots and lots of CDs and treasuries—and a much reduced (from normal) position in perpetuals and long dated bonds.

I am not tempted whatsoever to buy anything today–it may be 3 months or it may be 9 months before this whole story plays out and CDs at 5.7% are looking pretty damned good. I’m watching for higher rates in CDs as it looks like we may be relegated to that arena for a while–of course who really knows.

So we have the ‘beige book’ being released in 30 minutes or so – maybe it will boost stocks and bonds—or of course maybe it will slap them down even harder—who knows, but you can be relatively certain that we will have a market reaction.

Wow – it is just occasionally we get quality issues absolutely hammered, but today is the day. We have quite a few issues down 4%, including baby bonds and preferreds from DTE Energy (DTE) and CMS Energy (CMS)–the saving grace for me is small position sizes for these types of issues.

Additionally we are seeing the same type of losses in some of the community and regional banker issues. CNB Financial (CCNE) preferred (CCNEP) is off almost 5%.

I’m certainly not selling into this fall–but of course I am not buying either. As boring as it is to do nothing for now it is the right thing to do. My portfolios are off .3 or .4% but the world won’t end with those losses–but it certainly hurts.

I guess the best way to look at this pain is that it is preparing us all for future true bargain hunting.

We are very close to the point where most house sales will come to a halt. Yes there will always be some activity because sometimes folks have to move–for jobs etc. But from my close up view in Minnesota, what was already a fairly slow market is slowing further and properties for sales are remaining on the market longer. Prices are high–and coupled with mortgage interest rates that have moved up 20 basis points just this week means the moment of truth is just about upon us.

Today I am working on 2 properties that are sales—both family related (sold by parents to children or grandchildren), so they are special circumstances. Also I have a plate full of orders that are all home equity loans–yes there are a few lenders that require an appraisal for a home equity loan versus just going off the tax assessed value or some similar value. I have no idea what interest rate they are paying–but it would seem those will grind to a halt soon as well.

So my point is that the marketplace may well take care of slowing the economy without a need for incremental Fed Funds rate hikes. If builders in our area aren’t slowing construction they are pretty foolish–it looks like a good year to ‘take the winter off’—we’ll see.

Well interest rates are popping once again–trading around 4.62% which is just off of the high for the day of around 4.635%. Looking at my accounts the losses are minor — mostly attributed to the more modest dollar holdings of fixed income preferreds and baby bonds. Definitely is a good day to be watching markets and not participating in an active way.

Certainly it is not helpful that west Texas intermediate oil is up $3 bucks at around $93/barrel—this is going to make the trips to the pump kind of painful–just as we were backing off from $4/gallon a few weeks ago.

Just as I am typing this the S&P500 is getting a really good bounce – time for game playing and algo movements–with interest rates popping I don’t think equities are going to move up too much–once the game playing is over.

Going to sit back and see how the next 90 minutes plays out.

I’m not even hunting for ‘bargains’ today–what is the point of looking to buy unless you are locking in some short maturity baby bonds or term preferreds?

Income issues are pretty much all red today–fortunately only by nickels and dimes for the most part. The 10 year treasury is at 4.55% and in my mind is going to go higher – whether it be from stronger than expected economic news or from the massive supply from the treasury.

I see JPM still has a 5.75% 1 year callable CD hanging out on eTrade–I’m not even interested in that since my modest cash levels are getting 4.98%–which isn’t to shabby while ‘waiting’.

Housing numbers were soft today–but I wouldn’t call them a disaster–675,000 new houses sold versus 695,000 forecast. Consumer confidence softened a bit–but honestly all things considered 103 versus 105.5 expected and 108.7 last month isn’t really terrible–with gas prices, interest rates and the Washington clowns you would think folks would retrench further.

Well let’s see how the last 3 hours play out today — with the S&P500 down 1% anything could happen.

So much for treading water until Thursday and Fridays economic reports–equities are ripping with the S&P500 up 1.27% right now.

Along with equities ripping interest rates are tumbling pretty good as the consumer confidence numbers came in soft this morning and the Case Shiller home price index remains on the negative side of pricing–but slightly better than forecast. Right now the 10 year treasury is at 4.11% – down 10 basis poits on the day.

The job openings and labor turnover report (JOLTS) showed just 8.8 million jobs open right now – which while plenty high is a fair drop from 9.2 million last month and a forecast of 9.5 million.

Any report on employment is likely to get the FEDs attention – they absolutely want to see soft employment numbers – I am convinced it is 1 of just a handful of numbers that the FOMC committee wants to see soft as they are convinced inflation can’t be tamed without employment softening.

The 10 year treasury yield is trading at 4.19% right now and close to the highest level in about 15 years–up 11 basis points today.

Income securities are taking a bit of a knock, although not severe–nickels and dimes. Unfortunately those nickels and dimes turn into real money after a few days – of course I am talking my book – I don’t like ‘red’ which is what I am seeing all week.

As mentioned on Monday (I think) I had 2 GTC sell orders in on a couple of my banking preferreds – but with a greedy sell price they have not executed and don’t think they will anytime soon given interest rates, but with these thinly traded issues one never knows when they will sell – maybe someone puts a market order in and takes them off your hands.

I did enter a GTC BUY order for the SiriusPoint 8% Resettable preferred (SPNT-A). It is trading firmly at $24.92 so of course my buy order is below that price – once again I am waiting for someone to dump a few shares and fill my order 15-20 cents below current levels–probably penny wise and pound foolish, but this one isn’t going anywhere soon–if ever.

I see that JPMorgan is hanging a 5.60% 5 year CD out there – unfortunately it is callable in 1 year – but just the same not a bad coupon.

Here is what I am showing on eTrade right now.

So we got the news out of the way with the Fed rate hike yesterday – and then plenty of news this morning – almost all of it bullish for the economy.

Jobless claims came in less than expected–and ongoing claims continue to move lower as well. Durable goods orders were strong–although taking out transportation they were flattish. The 1st read on GDP was stronger than expected. On and on – there is nothing here to make one think the Fed is wrong by lifting interest rates.

Checking CD rates just now I see that banks are not lifting their rates to match the FED – maybe they have plenty of deposits? Don’t know – will have to keep watching them.

I am back on the hunt right now for so preferreds or baby bonds to buy – not a lot as my cash stash is modest and will stay that way until 8/15 and 8/31 when I have some bonds and CDs maturing. I am very tempted to buy some more of the Affiliated Managers Group (AMG) baby bonds–a current yield of 6.5% for a very solid Baa1 issue (MGR) is fairly tasty. The company just released earnings yesterday and they are a very solid company. Also everyday I look at the CHS issues and at the 7% area should one just add more of these issues (CHSCM and CHSCN) – both are fixed to floating with a decent ‘spread’ but the upside is capped at 8%. We’ll see.

Crude oil prices continue to elevate with west Texas crude up more than 10% in the last month—up about $8 barrel. On a year over year basis prices of crude are still down almost 20%.

Personally I have noted gasoline prices at the pump are ticking higher by nickels and dimes – which of course is only 1 part of the story.

On an immediately basis the higher crude prices will translate into higher PPI (producer prices) which of course are not consumer prices–BUT they will translate into higher CPI prices eventually.

I am not too worried at this price level, but if we get continual moves higher it could well factor into future interest rate hikes by the Fed and I don’t want to see them getting more ‘ammo’ to help them drive the economy into the ditch.

The super strong employment numbers today with 339,000 new jobs versus a forecast of 190,000 are certainly being well received by equities–the S&P500 is up 1.25%. The unemployment rate shot up to 3.7% versus 3.4% last month.

Interest rates have bounced a bit to the 3.67% area–just fine all things considered.

The economic reports overall continue to be mixed and as we look at the FOMC meeting on June 13-14 it seems like we have a ‘coin toss’ situation–the talking heads seem to be fairly certain of a pause–I thought a pause, but this employment number is not helpful so I guess we will see what further data bring us–CPI will be released on June 13–the 1st day of the FOMC meeting.

How about those smaller banking issues? I was reviewing my holdings and most issues are up $1 to $3 since my purchases. Of course I wish I had full positions–but I will take the gains regardless. There remains plenty of high yielding issues out there to buy–but I am not going ‘all in’ I am too conservative to go crazy–but will continue to nibble, nibble, nibble.