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CPI On Deck

After the 10 year treasury has moved in a tight range for a few days we may see it over sharply higher or sharply lower today as the consumer price index (CPI) for January is released in about 30 minutes. Forecasts are that the inflation rate—both top line and core will be falling. The 10 year treasury is trading at 4.16% right now–will we see it at 4.05% or 4.25% before the day is out – very good chance we will see significant movement. Buckle up – obvious and like always there is nothing one can do with investments now–sit back and enjoy the show.

Equities are off a little this morning, but we know this may move sharply higher or lower with the release of the CPI. The S&P500 continues to move to record highs, although yesterday the index fell off quite a bit in the afternoon after hitting a record high. Have we seen highs put in? I have no earthly idea, but there is an almost endless bucket of money out there that can move to stocks but as long as short term rates remain above 4% we are unlikely to see a stampede in–but instead a slow move higher.

Nothing–an appropriate description of what I did in the markets yesterday. Starting this week I will need to start making decisions as a batch of CDs mature. My target remains 7%–but in the end that may be a little aggressive–maybe I will have to accept a little less to fit my comfort level. I love, love, love the CEF preferreds, but few (if any) make the 7% hurdle–maybe I accept 5.7% and then toss the shares in the sock drawer and forget about them. So torn because I really like the BDC baby bonds which are high yield (not sock drawer), but have historically been solid investments. Lots of shorter term bonds and term preferreds available. We’ll have to see after I look at my laundry list of holdings and determine where I need to fill in some investing holes.

23 thoughts on “CPI On Deck”

  1. After seeing the Shrinkflation commercial during the Super Bowl , it doesn’t really inspire confidence that they know what inflation is. Much less what caused it.

  2. > I love, love, love the CEF preferreds, but few (if any) make the 7% hurdle

    Could someone tell me more about the ones that do, and why they are paying what they do? From your charts, it looks like Priority Income Fund (PRIF-K), Eagle Point Credit (ECC-D), and Oxford Lane (OXLCN) are the only CEF preferreds paying over 7%. I don’t fully understand why they are paying so much higher than everything else given the extra protections they have. Presumably it’s because of risk, but I’d like to better the comparative risks between them.

    From my limited research (I don’t own any of them), these are all issued by funds that deal in the (riskiest) equity tranche of CLO’s (Collateralized Loan Obligations). I presume the fear is that despite the protections offered by the Act of 1940, the value of their assets might evaporate so quickly that there isn’t enough coverage to fully redeem the preferred shares in the time allotted. Is there data on what sort of circumstances might cause this? Is the risk the same for all of them? And are there other less visible risks too?

    1. Nathan. Can share my two cents. I’m not an expert on CLOs but also not completely ignorant.

      Yes, your diagnosis is correct. Concerns relate to the volatility of the investment and ability to sell them during periods of stress. This is why equity CEF prefs are always lower yield. Yes, equites can be liquid, but you can sell them instantly.. unless they hold private equity garbage like highland 🤢.

      Back to equity CLOs, my understanding is that they are generally liquid but this can dry up during periods of stress. My sense is that they can often provide compelling value, and there are many misconceptions, but the data is also not indicative of their potential risk. Kind of like sub-prime bonds showed very low vol leading up to ‘08. I say this because the asset class has exploded in volume in recent years.. which increases systemic risk and creates another unknown related to liquidity.

      Personally, I am not a buyer at these levels.. just not worth the addtl 50 bps over a NCV/Z or even RIV.

      There are a couple of educational podcasts with the Eagle point guys that may help you get comfortable.

  3. All this expectation that the Fed’s next move is to drop rates – if not in March, maybe later – felt overly optimistic to me. I’ll be watching the CME FedWatch tool to see if folks start forecasting an increase instead.

  4. Saw that the media is finally picking up on the fact that 8 million immigrants tend to be inflationary to housing and food. Population growth is a long-term economic engine, but quick injections of population tend to be inflationary.

    1. Correct.
      Don’t forget about medical services / needs as well. The situation in Denver is terrible as I understand.
      The prices experiencing inflation are inelastic. Increase price but the demand / growing demand is there. Time will tell if we are in self feeding cycle. If we are then a bad change in economic policy would cause something to break.
      Much like our national debt the fix would require some pain but would take half a generation to fix.
      But cheer up, the groundhog says we get an early spring. Wondering how much the green fees will go up this year.

      1. FORBES: Who Needs A Groundhog When Climate Change Practically Guarantees An Early Spring

        “This year, spring leaf out arrived in the Southeast over three weeks earlier than the long-term average (1981-2010) in some locations. Austin, TX is 10 days early, Jackson, MS and Charleston, SC are 17 days early, and Wilmington, NC is 22 days early.”

        Time to retire Phil?

    1. Wide spreads this morning but no panic in the 75 issues I follow. I was best bid or best ask on 8-10 issues but no one was biting.

    1. That inflation print was so vile. I just saw that core services ex housing services printed .849 which is 10.67% annualized.

      1. Yeah – it was pretty easy to see (at least I thought it was) that inflation is very sticky. If the Fed goes hawkish, it’s katy bar the door. Added a 5.30% CD (JPM) this morning and have more treasuries maturing Thursday. Will look to re-ladder there into early next year.

  5. Tim, I picked up my first nibble of GAM B last week at 24.49 a solid 6% on YOC
    So finding a conservative buy with 7% YOC is going to be hard I think.

    1. Charles:

      You must be a magician or have access to trading platforms and prices I am not aware of….because I own GAM+B and did not see any trades anywhere near $24.49 in the last week.

      It has steadily held near $25+ for all of 2024….at least that is what is displayed on a YTD chart on Schwab.

      1. Ah Twist I couldn’t either, so I think It was a internal gift from T R Price compliments of Pershing.
        Hope you haven’t jinxed and they reverse it!

      2. On Fidelity Active Trader I can see one trade for 123 shares happened @ 24.48 at 14:28:09 on 2/9 and anther 250 @ 24.49.

      3. Kid,
        Like Charles have had many trades execute below daily posted high/low – and a handlful below 52-week lows that were not reflected on the big board.

        In the case of GAM-B, the low trade on Feb 9 was 24.48; below Charles’ excellent nab at 24.49.

        1. TSX website (free) is the best for stock trade history for US and Canada. It is time delayed.

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