Consumer Confidence Continues to Grow Weaker

As we were expecting Consumer Confidence fell again during the month of January. With the partial government shutdown and the political acrimony this could hardly have been unexpected.

The reading of 120 in January follows a 126.6 in December and down from a 18 year high of 137.9 in October.

The economic key here is whether we see a rebound in the next couple of months–or does confidence continue to erode? With the consumer driving almost 70% of the economy confidence is key.

Additionally today housing prices in the Case-Shiller 20 city index came in with an increase in prices of 4.7% year over year which is the slowest rate of increase since 2015 and dovetails with the 3 year low in existing house prices we saw last week.

With the softness in these reading (and we think confidence and housing are joined at the hips) we see the 10 year treasury now trading at 2.72%–off a couple basis points. If we see a dovish tone to the FOMC meeting ending tomorrow I expect to see rates in the 2.6’s%.

6 thoughts on “Consumer Confidence Continues to Grow Weaker”

  1. My investing this year is based on my personal opinion that consumer confidence will continue to erode as will as the S&P 500. About half of my capital is invested and I’m sitting on my hands looking for significant dips before adding further IG securities.

    So far in my learning curve I have not made any buys over par prices. This is obviously a limiting strategy and I would love to hear you experienced income investors sound off on why you buy over par at times and the criteria used to make those decisions.

    1. Mikeo, I do it when situation warrants. Heck last year I bought a $100 par (non callable) at $140 and sold it at $182.50 a month later. Yes that is an extreme example… If you factor in YTC or YTM and buy with that number in mind and are comfortable with it, then par at that point is largely irrelevant then. Depends on the situation though. Yes, preferreds are up, but not to the degree that it was a year ago. So one doesnt have to blindly reach for over par. Plus over the past couple years many have reissued low coupon preferreds by their very nature of yield have been pushed under par. And in that case they still may be deemed to low of a yield to buy. It depends on your credit risk level, duration risk, and yield sensitivity risk one wants to assume. And that may lead to one as Tim referenced, to not buy much at all.

    2. Mikeo
      Let’s assume that we determine 2 issues have the same “risk” and both are callable in 10 years. One issue pays 5% and trades at $24.99 (under par) while the other pays 8% and trades at $25.01 (over par). I know which one I’m buying. Yes this is extreme example but it helps illustrate the point. Perhaps a concern is the return on the parked 50% of your capital. My approach varies but right now I keep ladders of 1 year CDs (around 5%) and bonds (around 20%). Rates have come up enough that they return 2.4% and 3.4% respectively. This obviously can reduce the total return but it lowers the risk. I have cash coming in every couple weeks to either deploy or return to ladders. Also the bonds can be liquidated when I want “juice”. During December I lost about 1% on cashed bond sales but gained a quick 5%-15% on the other purchases made possible. I put the bond money, plus some of the profits, back after cashing out. Everybody has to find their own way, and usually their experiences have a big influence on what it looks like.

      1. Good example P. And sometimes you get what you pay for so paying a little more (but not too much) is worth it for safety.

    3. mikeo
      For me, the question to invest or not is based on the return. If I am considering two similar issues, I compare the yield to call and the yield to maturity. I don’t invest in any issue without using the Excel function “yield” for both call and maturity. On occasion, I use this function to determine when the return of one issue will “catch up” with another when pricing and rates are grossly different.

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