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Dovish CPI Numbers Bode Well for December

Well the CPI came in cooler than expected and interest rates have initially plunged–the 10 year falling 15 basis points. To me this is a ‘party’ number — as in ‘lets party’. By the end of the day we may see interest rates creep back up to a more reasonable number – say 4.55%. We should see a reasonable rally in income securities as folks believe that the odds of a December rate hike on 12/13 have become less likely–although we have much data to come in in the next month. We’ll just have to wait and see.

Personally this is the time one wishes they were 100% invested in baby bonds and preferreds–any rally today in income markets will outperform my portfolio since I am only 50% (maybe it’s 40% or maybe 55%) in those areas. To think one can ‘time’ the exact bottom and top is a fools errand. For now I will have to be happy with a gaggle of CDs at 5.25% to 5.75%–and honestly I am very happy. In spite of the potential rallys in income issues I am looking at buying a number of ‘pinned to par” issues with my minor dry powder and they will not experience the rally of the general markets–i.e. the SiriusPoint 8% preferred (SPNT-B) purchased last week which should trade plus and minus 50 cents from $25 based on an anticipated redemption in a couple years. I’m happy to collect a solid 8%.

24 thoughts on “Dovish CPI Numbers Bode Well for December”

  1. I am loving Party Time! More of these please!

    Also not to get greedy but next time please happen one or two days later, after I have had a chance to deploy my soon-to-be-called C-K funds…

  2. While I focus little on my overall account balance and instead focus more on annual cash flows from dividend / interest, I could not happen to enjoy the Party Time on the street today.

    I should also not I am more of a long term investor and only trade around the margins (going from 85% to 95% invested). From early to late October, I put a bunch of my excess cash to work on various preferreds and beaten down REITS before the mutual fund tax loss selling ended. Now most of the reits were simply additional positions to exiting core positions although there were a few new ones as well. I only buy more when they are beaten up and people irrationally think real estate is trash. Well the REITS were partying hard today, up between 6% and 12% (and more from a few of my buy prices)

    Besides being a cheapskate and only buying at bargain prices, this is why I believe you shouldn’t wait on REITS if you are interested in them when they hit a price you are comfortable with. Here is a good summary from CWMF, one of the very few guys on SA that is a straight shooter and a good follow

    “Investors should remember this day. This is the second time in the last few weeks we’ve seen a big hit to interest rates coincide with REITs surging. The REITs do not simply wait around for investors to evaluate the lower rates and decide if they want to invest in the sector. Rates plunge, and the REITs rally at the same time.

    This is part of why we have not simply sat on the sidelines. We’re buying great companies and getting great prices. Those great prices are available because demand for REIT shares sagged under the pressure of higher interest rates.

    Interest rates may continue to be a key factor in moving REIT prices. REITs could be up or down 5% in a week. However, we’re looking for strong companies. When the dust settles, our companies should still be generating strong cash flows for shareholders.”

    Full article


    Party on Garth

  3. Since it’s “party time,” who cares??? – Moody’s takes rating actions on large US banks following change in US sovereign outlook

    https://www.moodys.com/research/Moodys-takes-rating-actions-on-large-US-banks-following-change-Rating-Action–PR_482029 for full article [free Moody’s subscription required]

    New York, November 13, 2023 — Moody’s Investors Service (“Moody’s”) today affirmed the Aa1 long-term deposit ratings for some of the rated bank subsidiaries and branches of Bank of America Corporation (BAC), JPMorgan Chase & Co. (JPM) and Wells Fargo & Company (WFC) and changed the outlooks on these ratings to negative from stable. Moody’s also affirmed the Aa1 long-term issuer rating for Bank of America, N.A. (BANA) and the Aa1 senior unsecured debt ratings at BANA and Bank of America, N.A. (Sydney Branch), the Aa2 long-term issuer ratings and Aa2 senior unsecured debt ratings for some of the rated bank subsidiaries and branches, as well as the Aa2 rated senior unsecured debt by the bank subsidiaries of JPM and WFC, and changed the outlooks on all those ratings to negative from stable.

    Moody’s also affirmed certain long-term ratings of rated bank subsidiaries and branches of Citigroup, Inc. (Citi), including the Aa3 long-term deposit ratings at Citibank, N.A. and Citibank Europe plc, the Aa3 long-term issuer rating at Citibank, N.A., and the Aa3 senior unsecured debt ratings of Citibank, N.A., and Citibank, N.A. (Sydney Branch), and maintained the stable outlooks on all those ratings.

    The rating actions on the bank subsidiaries and branches of BAC, JPM, WFC and Citi (including rated obligations those subsidiaries guarantee) reflect the potentially weaker capacity of the Government of the United States of America (Aaa negative) to support the US’s systemically important banks, as reflected in the recent change in the outlook on the Government of the United States of America to negative from stable (“Moody’s changes outlook on United States’ ratings to negative, affirms Aaa ratings”, https://ratings.moodys.com/ratings-news/411110). Moody’s noted that the change in outlook on the Government of the United States of America had no impact on its score for the macro profile of the US banking system, which remains Strong +.

  4. @Tim

    You bought SPNT-B last week (and not SPNT-P as post above)?

    This was indeed a good pick – thank you. I bought some too and sold half of it today as it went ex-dividend for a quick profit. Aim to add back if / when lower

        1. Regarding SPNT preferred, be sure to keep close tabs on corp classification. I believe in a 10-K less than a year ago, it alluded to being classified as a PFIC in the future. Hence I will avoid this one. If it winds up getting classified as a PFIC, you may seriously want to consider whether or not dealing with the extensive requirements/length of having to file form 8621 is even worth the investment, especially if you file your own taxes.

          I always find a little humor when I hear people complaining so dramatically about getting a K1 in their retirement accounts. Even if you pop UBTI, the broker/custodian handles all the tax filing for you and pays the tax for you as well out of the account. This was never a big deal for me. However form 8621 is a whole different universe.

            1. ESW3 – Great distinction. I know for sure, these more unique retirement vehicles are exempt. I’ll have to take a look at that PDF link.

              …..However, a U.S. person that owns stock of a PFIC through a tax-exempt organization or account described in the list below is not treated as a shareholder of the PFIC.

              An organization or an account that is exempt from tax under section 501(a) because it is described in section 501(c), 501(d), or 401(a).
              A state college or university described in section 511(a)(2)(B).
              A plan described in section 403(b) or 457(b).
              An individual retirement plan or annuity as defined in section 7701(a)(37).
              A qualified tuition program described in section 529 or 530.
              A qualified ABLE program described in section 529A.


  5. Powell has repeated that he wants a “durable” (more than one reading) 2% inflation print before they will say job done.

    PCE, the Feds key measure of inflation is sicky, especially wages. and lilely to hang around 3% for a long-time. forgoing a recession whick would put downward pressure on wages, and PCE will fall. Mission accomplished.

    Soft Landing or Recession? Make your bets.
    Cheers! Eindy

    1. windy–yes 1 number does not make a trend–but stock traders don’t care I guess.

    2. Stop expanding the money supply if they want to kill Inflation. Raising rates while printing money is like running the heater and the air conditioner at the same time. Inefficient way to set the temperature. But they would have to tell gubmint and politicians the overspending party is over. PhD economists can’t be that dumb they have to know this is a con job to support their masters.

  6. In case someone cares:

    WFC 18 month CD is at 5.50 call protected and flying off the shelf at Fido.
    14,562 left for purchase.

    IMO, I would rather purchase some more pref shares instead of CD’s

  7. as of now rates now basically where they stood 2 weeks ago. 3M Treasury still not budging, a little but still there at 5.42%

    The ‘nobody knows what’s going on economy rolls on’.

  8. Barrons is saying this morning that Fed rate cuts are likely soon even without a recession.

    1. MFZ—one never knows for sure, but if data remains tame I think they will hold for a bit (6 months)–remember the Fed can do short term rates, but we have a pile of supply from the treasury coming continually which may (or may not) hold long rates higher.

      1. Tim, I agree. I think Barron’s writer got carried away. It is too early for the fed to declare victory.

        1. Barrons are mere cheerleaders. While I read their stories regularly and know all the writers……I don’t think any of them have a good track record of forecasting.

          I missed the news this morning and turned on my screens to a sea of green. If you’ve built huge cash positions now is the time to move some more towards your best ideas!!

          It’s just crazy I read MSFT and AAPL are each larger individually than any S+P except technology!

    2. Rate cut not likely any time soon unless the economy is in the dumps. Which would be bad news. No cause for celebration in this “bad news is good news” market.

    3. As far as I can see, they are the only ones out there this aggressive – most thinking cuts delayed till at least 4Q24. We’ll know when it gets here!

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