The Conference Board announced consumer confidence is skidding–and equities are not taking kindly to the news with the S&P500 off about 1% right now. The index was at 98.3 in February versus forecast of 102.4 and 105.3 last month.
On the other hand the 10 year treasury yield has dropped by 8 basis points giving income investors a portfolio lift–all those perpetual holders out there should have some respectable gains in the last week.
Yesterday I did double up my position on the GAMCO Global Gold and Natural Resources (GGN-B) 5% perpetual. With hindsight I should have gone ‘all in’–but since that will never happen I have to be satisfied with more modest gains. All of our portfolios are at record highs right now (we are not drawing any funds from out IRAs), although it is a slow push higher with the limited perpetuals we hold.
So as I see it now investors are anticipating a slower economy (how slow?) and have now accepted the premise that DOGE will actually reduce spending. We are seeing the effects of these beliefs. This would seem to be the time to buy quality perpetuals at bargain prices. They have moved 1-2% higher in many cases but my work shows that if rates (10 year treasury) would move to 3.75% we would see a 4% gain in perpetuals so plenty of time for a little repositioning yet.
We all are trying to make our best guesses of what can happen and what to invest in. I am going to offer a example.
I’m not going to say what it is.
I am looking at a low coupon perpetual BBB- (low investment grade) and eyeing the chart. Now I’ll let you match the history of the news to what I see on the price.
The price has been in decline since the Oct. Peak then a spike in Dec. the last ex-dividend date. In the past year it shows the same ex-dividend spike in Sept. and June. So don’t believe Insider Monkey article 5 hours ago saying it’s skyrocketing so far in 2025.
Now if you really believe low investment grade perpetual’s will increase in value as rates drop would you be buying this? BTY, I’m not talking about an illiquid preferred.
This is just an exercise in thinking this out.
Here is something never quite got. We have sticky inflation, Fed resistant to cut, and yet all the while market rates sliding down all along the yield curve. Stagflation being discuss, again. Some of this reminds me of the tropical weather joke, if you don’t like the weather wait 20 minutes and it will change. E.g. big revisions, new reports, etc.
Oh well, I got my cable fixed today, so time for happy hour.
Time to admit that the Fed cutting short term rates, and projecting more to come isn’t, after all, “ill-advised”. The “data”, after the horrendously incorrect and overblown jobs numbers fiasco was corrected last summer, has been telegraphing a very weak economic situation.
Yet, the leading indicators are up as well as the coincident and lagging indicators too? But something is going on right now that may show impact in a few months..? Time to stay high at the mast and look closely.
We can’t cut spending and cut taxes then hope to get the deficit paid down. It’s been tried before and doesn’t work. Sounds great, we give big and small businesses tax breaks and they grow the economy and hire more people.
Warren Buffett agrees and has said he doesn’t mind paying taxes. There are bigger companies that pay even less than Berkshire does.
Not trying to be political but government spending pulled this country out of the depression along with WWII and the same with the GFC along with lower interest rates.
Agree, they will need to tie the tax cuts to spending cuts. Should get everyone on board.
Depends on what you spend the money on. It has to have real ROI. Real ROI is most times capex investment that opens up completely new opportunities , not helicopter money distributed to everyone to spend on NFTs. Please don’t equate recent spending to post WWII. Doesn’t do history justice.
On the job and phone today calling out to find out the status of projects quoted in the past yr. One has started, rural area clinic. I was told plans are to frame and enclose it but not finish the interior until later this year or spring of 2026.
Project requires “BABA” Buy American Build American. Paperwork trail must be submitted.
Distributor said commercial projects have slowed down. If interest rates dropped it might help.
I am cautiously optimistic DOGE succeeds. Strong backing from JP Dimon yesterday, one of the louder voices on Wall Street. Everyone knows government is too big and too expensive relative to ‘outcomes.’
On the other side of the coin, show me the money, in form of actual deficit reduction. Let’s see if this administration is really able to keep its poker face when the market throws a fit. Tough place to be IMO. Anymore pandering (read easing) and inflation shoots through the roof (political death cross) and if you do the right thing everyone’s 401K is going to take a big bath. Ultimately smaller government, lower taxes and less regulation are growth positives (so too people actually coming back into the office and actually working) but can it offset trillions of government debt fueled growth?
I just don’t know. So I keep de-risking. Today I sold most of my floating rate bank loan ETF SEIX. Why should I earn 7.3% on a bunch of B rated credits? No thanks. Those bank loans have been great over the past few years and now absolutely priced for perfection.
I want to add something here when talking about all this private credit. Including it’s investors BDC’s CLO’s etc. and the likes of ECC etc. I would venture many PE firms own a “diversified” portfolio of several B rated companies leveraged 4-5x with these bank loans.
If one company fails the PE firm might need to take a “dividend” from the others to meet creditor obligations. These firms are nothing without their lender relationships. A dividend implies cash, but these companies don’t have any, only enough to operate day-to-day, (i.e. why they are B rated in the first place) so the dividend is financed with more borrowing at the portfolio company level in effect worsening the credit of the survivors. That might be how the dominoes eventually fall in this space. We should all remember that this stuff is called Junk for a reason.
JP Dimon , has a FOUL loud voice you mean?
$2T Fiscal Reduction in Spending, Tariff’s, $4.5T addition to LTD, and. Very possible government shut down with USA Debt quality downgrade…!!! “WHAT ME WORRY” Alfred E. Newman!