Consumer Confidence Moves Yields Higher

So everyone knows by now that Consumer Confidence (as measured by the Conference Board) moved strongerly higher in August with a reading of 13.4, which is the highest reading since October, 2000.

On Monday we had written “For the coming week we have Consumer Confidence being released on Tuesday and while this is unlikely to garner much attention any sizable shortfall to last month (127.4) could be meaningful as the consumer drives the economy and any failure in confidence could send consumer spending down hard”.  Obviously there is no confidence problem and outside of a ‘black swan’ event we likely will have a decent economy through the balance of the year.

Today with the release of the strong confidence numbers we got one of the few upticks we have seen lately in the 10 year treasury yield with a a bump up to 2.88%–just over 3 basis points higher on the day.  This is not meaningful to investors and share prices remained flat.

You can see in the current chart below of current confidence trends that after flattening for a few months confidence ‘falls off a cliff’ just as we enter a recession.  I think we can rest assured that we will not see a recession anytime soon.

So there are a few coincident indicators we watch-1 important one, is the level of consumer credit which could be spiking higher with rising confidence.  To us this simply means that the more debt (in particular credit card debt) that the consumer takes on the deeper the next recession will be.

Here is a chart from the Fed Reserve Bank of New York showing current (though the end of Q2) levels of household debt.

It is a bit hard to read, but what it shows is that the non housing debt of the consumer is now at $3.86 Trillion and it had previously peaked at $2.69 Trillion is 2008.  I will be watching the next few months and quarters to see where this heads—I think it is reasonable to assume we will see large jumps in these numbers ahead as consumers choose to believe that the party will go on forever–it won’t–but it will for the next few months.

15 thoughts on “Consumer Confidence Moves Yields Higher”

    1. I picked it up at $24.95. Waiting to see if the buying dries up before buying anymore.

  1. Yes Grid, greed is sometimes hard to resist. I was probably 80% stocks until last January. Then I realized “ hey I’m retired”. What if the market staged a significant reversal ? That made reassess my thinking. I’ve got a small pension, social security, a pharmacist wife still working 30 hrs/week but retiring within 2 years. I’ve got too many things I want to do in the years ahead to have a market correction take a big bite. I’ve got some of the issues discussed on this site, a laddered CD for a good chunk, some individual $1000/par bonds (investment grade) and 1/4 of our money in the TSP G Fund. Pretty conservative…and safe! Now if only I could snag a few hundred shares of AILLL. Somebody got some at $25.55 late in the day. Not me unfortunately.

    1. Retired, I need more like a hole in my head. But on golf course I saw that trade and standing bid was $26.50. So I put in a bid for 400 more at $26.55 to see if any more were available. I quickly got jumped and that was that. No seller came out again so it didnt matter. Just have to be patient and hopefully you will get a shot. I picked up this week some Goldman Sachs subordinated trust preferred debt with 2034 maturity with a make whole provision on an early call. About 6.1% YTM, no steal of the century, but good enough for me and reasonable risk/reward for the yield.

      1. Grid – is that 38143VAA7 you speak of, the Goldman issue? If yes, how do you get to a 6.1 YTM? I must be missing something.

        1. I bought it in the “Lehman busted synthetic adjustable” baby bond version ticker JBK this week at 25.70 which trades with a better yield than the actual underlying bond that JBK holds in trust. A most interesting history concerning this issue, but it is all resolved now. That was why an unrelated 3rd party just recently offered a tender for the certificates.

        2. Bob, I forgot to answer…Yes that is the bond…This bond is held in JBK trust. A lot better yield as you noticed. This is why Origen Phoenix LLC tried to fleece JBK with an unsolicited tender at $26.50 this month.

          1. Another one of those issues you can’t buy online at Fidelity. Grid, what brokerage are you using ?

            On a side note, last week I asked about the Pacific Gas & Electric preferred issues. I’ve noticed that the preferred A ( which had my interest) has traded sharply higher yesterday and today. Must be some gamblers out there that are betting the California legislature will pass a bill currently in committee that allow utilities to stick rate payers with their wildfire liability. I was tempted but it seemed like an all or nothing bet so I passed.

          2. Retired, I suspect if you were interested you could call them and put a standing bid order in at price you determine. From my experience, they just charge you online rate. I bought mine through Vanguard, but TD was working for it also. I have heard complaints that some people have said Fidelity blocks a lot of floating rate issues.. Except this does not float, though its name implies it. It used to, but after Lehman went bankrupt there is no synthetic adjustable anymore. This also means largely it cant be called since the brokerage was the one who could do that and it is no longer there. Its just a trust pass through now with trust distributing the semi annual interest payment to the certificate holders.
            If you notice link below the underlying bond is uncallable ( technically it is with ” make whole” provision). This is why the actual bond in trust trades over $117 and a YTM of under 5%.

          3. TY, grid, for the reply. I had missed that the BB had reverted to its original interest rate, but it all makes sense now. 2004 was a time when issuers liked to get fancy with their preferred terms.


        3. Bob, I had known about JBK several years ago and flat wrote it off and forgot all about it. A couple years ago Lehman rose from the grave to try to do clawbacks on all these sorts of retail adjustables they issued. Once they went bankrupt, the trust declared the swap agreement dead and converted JBK into a straight pass through giving the JBK owners the straight bond payments. Lehman creditors claimed “the spread” they werent getting was theirs and this was thrown into the courts as a lot of money was at stake from various issues of swap agreement money for many years was at stake. Plus the ability to redeem them at par and pocket the spread from the bond itself. Anyhow after a court case and appeal that both shot down Lehman recently its over. I suspect that is why Origen Financial saw this as an appealing income issue. Especially since it trades over 10% lower than the actual bonds trade at.

  2. Being 63 yrs old, I’ve seen this movie before. The economy doesn’t get much better than it currently is and if it can’t get much better then what is the catalyst to drive stock prices higher ? I suppose the multiples could expand but they too eventually come back to earth. You’re so right that debt levels are growing and that too will end.

    I’ve got about 6% of our retirement funds in a couple of low volitility stock ETF’s with the rest being cash and fixed income issues. I’ll be looking to exit that 6% this fall. When I see consumer debt at these levels, I feel like we’re playing musical chairs and the music is about to stop. I’d prefer to have a seat.

    1. Retired, I can appreciate your conservative outlook. Protecting the nut after we retire takes on more significance. Fortunately I have a good pension that is really all I need and more. But I try to protect my nut and grow it with conservative income issues and opportunites. But the thirst for greed and yield is always there. Usually every three months or so, I have to go and look at my income issues from a fresh perspective. And usually this involves pruning some as I clearly realize it was a yield chase. I have a few now that are doing fine. Im not ready for my 3 month review as I dont want to sell them yet, lol. But outside of GLP-A, most are in limited amounts.

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