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Weekly Kickoff – Ready for a ‘Melt Up’? Or Maybe a ‘Melt Down’?

One can’t really predict with any level of certainty to whether equity markets are going to move into a ‘melt up’ with all the cash that continues to be available in fixed income–OR whether markets will ‘melt down’ as folks decide it is time to bail out and move MORE to money market funds. I see everyone and their dog on CNBC, Fox Business and Seeking Alpha have an opinion as to which way markets will move. NONE of them know squat–but likely maybe 1/2 will be correct. Does that mean I know? Of course not, but I just say ‘I have no earthly idea’. I have no newletters to ‘push’ or special ‘morning calls’ to sell—everyone of these folks is ‘talking their book’. Very honestly these ‘gurus’ are kind of dangerous to the non thinkers–and I have concluded the number of non thinking investors out there is pretty massive–seems like most folks want to let others do the thinking–then they have someone to blame when their ‘stash’ goes south. I like the thinking of folks on this website–plenty of info to educate oneself and then make your own decision.

Last week the S&P500 moved higher by about 1.7%—not quite a record weekly close, but the close on Thursday was a record high close. There wasn’t really any economic news to push markets higher. Jobless claims were 223,000-about on forecast and historically fairly low–if folks are employed the economy marches on. Existing home sales are pretty quiet–they say the slowest since 1995–obviously the high prices and the somewhat normal mortgage rates (apparently not normal for anyone under 40 who is waiting for 3% to return) have stymied most folks. 2 high income families and old folks with cash in their pockets can do what they want–but that leaves a lot of folks on the sideline.

The 10 year treasury closed the week at 4.63% which was 2-3 basis points up on the week. Without consequential news movements were minimal. This week we do have economic news of meaning. We have the federal open market commitee (FOMC) meeting starting on Tuesday afternoon–then the ‘announcement’ and Jay Powell presser on Wednesday afternoon. Prior to the interest rate decision we have the advance estimate of GDP for Q4 on Wednesday morning. Lastly we have inflation numbers from the personal consumption expenditures (PCE) on Friday. If all that news doesn’t cause some market movements I would be surprised.

So are rates going up or down–or staying the same. For now I think they remain unchanged. There is no labor stress and inflation is kind of flattish–not at target yet–but just treading water. Almost without doubt Jay Powell wants to see more data.

The Federal Reserved Balance Sheet fell by a piddly $3 billion last week–now the balance is $6.832 trillion. Already the Fed has run off more of the balance sheet that I thought they could accomplish–the high point was right around $9 trillion. Certainly sometime in the next couple of years we will need to utilize the balance sheet for quantitative easing–so at least we have built a $2 trillion buffer (as compared to the high) of buying power.

Last week the average $25/share preferred and baby bond bounced back a bit. The overall average share was up 16 cents with investment grade issues moving 25 cents higher, banks up 18 cents with CEF preferreds up 8 cents and mREIT preferreds up 15 cents. All in all not a big up week, but at this stage anything green is good.

Weekly Kickoff

Last week we had stocks move back into ‘party’ mode as the S&P500 moved higher by a giant sizes 2.9%. This appears to be related to the CPI and PPI info which came in slightly softer than expected earlier in the week which sent interest rates tumbling.

As mentioned above the yield on the 10 year treasury to a good sized tumble last week falling from 4.78% from the previous Friday all the way down to close at 4.61% on Friday.

For the coming week economic news is relatively light, and while we could be surprised none of the data should send markets plunging or flying. Of course now have the Trump administration in charge so there is no telling what sort of news could move markets. We had no news released Monday since it was a holiday and there is none scheduled for Tuesday. Leading economic indicators are released Wednesday, but this has been a market mover over the last year or two. Existing home sales and PMI (purchasing managers index) are released on Friday and typically these will not move markets.

The Federal Reserve balance sheet fell by about $20 billion last week.

The average $25/share preferred and/or baby bonds took a jump last week as one would expect given that the 10 year Treasury yield fell substantially during the week.

The average share rose by 20 cents last week, with investment grade issues jumping a huge 36 cents, banking issues jumping 33 cents, CEF preferreds were up 14 cents, mREIT issues were up 2 cents but the shippers fell by 6 cents.

Last week we had 1 new income issue sold–mortgage REIT Redwood Trust (RWT) sold a new issues of senior notes with a coupon of 9.125%. RWT has other notes and preferreds outstanding and these can be seen here. It is always best to check outstanding issues because there may be outstanding issues that are superior in some regard (i.e. yield to maturity etc).

Weekly Kickoff

Are you ready for the week?? I don’t know if I am–but I guess it starts today so ready or not here we go.

Last week we saw the S&P500 setback by around 2%–precipitated by strong employment numbers released on Friday. Interest rates were already elevated from the previous week by about 10 basis points–but then the employment numbers sent the 10 year Treasury up another 10 basis points to the 4.80% area.

The 10 year treasury closed up 18 basis points from the previous Friday at 4.78% although the yield hit 4.80% earlier in the day. Quite obviously investors are concerned with strong employment which is coupled with $113 billion in new Treasury money being raised and now they want to be paid more to fund the debt of a deteriorating situation.

Of course there is never a let up in this tense economy in data. The coming week we will see little economic news on Monday, BUT then we have producer prices (PPI) and the Beige Book on Tuesday and then consumer prices (CPI) on Wednesday. Retail sales get added to the mix on Thursday which will give us another read on economy. Looks like the making of another potentially wild week. We’ll see soon enough.

As one might expect the average $25/share preferred and baby bond fell in price. The overall average fell by 41 cents with investment grade issues falling hard by 68 cents. Bankers fell by 47 cents. Closed end fund issues fell by 17 cents, mREIT issues fell 18 cents with shippers moving 2 cents lower.

Note that lower quality, higher coupon issues fell the least. Additionally CEF issues were reletively stable because a large percentage of the issues are short duration baby bonds or term preferred.

Last week was a relatively busy week in new issuance in income issues. None of the issues below are investment grade, but the 2 insurance companies are just a notch or so below investment grade–in a stable market the 2 insurance issues would be excellent buys for most investors with coupons that pay nicely. Obviously with interest rates threatening to go higher it is anyone’s guess whether they go up or down in share price.

Weekly Kickoff

Last week was a fairly quiet week in the equity markets. The S&P500 moved in a range of 6033 to 6100–closing at 6090, which was a gain of right about 1% from the close the previous Friday. Even the all important employment reports couldn’t move markets very much, but green of any magnitude is good, although the ‘feeling’ that markets are due for a setback is pretty strong. But there remains plenty of money available to drive markets much higher whether they go higher is anyone’s guess—but the ‘smart people’ continue to forecast markets moving higher in 2025.

The 10 year Treasury moved in a range of 4.15% to 4.27% last week, closing the week at the low which was a close 3 basis points below the close the previous Friday. It remains to be seen whether these yields continue to trend lower (now off 28 basis points since the elections. Even with the Fed FOMC likely to cut interest rates in December in the end the marketplace will determine longer term interest rates and now it appears there is a great confidence that the Congress will cut spending. We shall see in a few months. This week we have the consumer price index (CPI) being released on Wednesday with the PPI coming Thursday.

The Federal Reserve balance sheet assets fell by $10 billion last week–now at $6.895 trillion. With interest rates most recently starting to fall again it seems wise to continue the runoff–but it is just a ‘tool’ that can be used to affect interest rates. The runoff can be lowered or raised as conditions dictate. We may see a lowering of the runoff during the first half of 2025 instead of Fed Funds interest rates cuts as

Last week–simply spite of interest rates falling slightly the average $25 preferred and/or baby bond price fell by 10 cents. Investment grade issues fell by 13 cents, banking issues fell 17 cents with CEF preferreds off 5 cents and mREIT preferred fell by 8 cents. The ocean shipping company’s preferreds did what they have done for months and moved just a little at up 4 cents.

Last week we had a couple of new income issues priced. Ready Capital (RC) priced to a new baby bond with a coupon of 9% while Eagle Point Credit (ECC) priced a new bond at 7.75%.

Weekly Kickoff

Well let’s get back to a normal week–whatever a normal week is. Anymore there really are no trading days that are ‘normal’ as we would have defined it 20 years years ago. Everyday there is some sort of economic news that has the potential to move markets–OR recently a simple proposed appointment of a particular person for Treasury secretary moves interest rates sharply lower. Oh well such is life–we just have to deal with it!

Last week the S&P500 moved up by 1.1% which once again puts stocks at new highs. It seems that stocks would be overbought–but these things can take months and months to play out and with the availability of cash in money markets ($6-7 trillion) and CDs if a time arrives when rates plug below 4% stocks could go parabolic. Who knows for sure? No one!

Interest rates moved lower and lower all week long. The 10 year treasury yield closed at 4.18% which was about 24 basis points lower than the close the previous Friday. Economic news on the week was pretty much on forecast and there was no economic news that logically caused the interest rate plunge–leading me to conclude that investors are now trading on politics. Well since politics are off limits here I will move on. We’ll see if this situation reverses this week with ADP employment on Wednesday and the official government employment report on Friday.

The Fed balance sheet fell by about $18 billion last week–now solidly below $7 trillion at $6.905 trillion.

The average $25/share preferred and baby bond rose last week by 12 cents–a seemingly small gain for a week where the 10 year treasury yield tumbled by 24 basis points–but given that I have preferreds overvalued by 2-3% this isn’t such a surprise. Investment grade issues rose by 15 cents, banking issues rose a strong 21 cents, CEF preferreds rose a dime, mREIT preferreds were up 8 cents and shippers were flat with last week.

Last week we have RiverNorth/Doubleline Strategic Opportunity Fund (OPP) issue a new 6% term preferred as the result of a rights offering. Details are limited, but more info is forethcoming.