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Early Morning Thoughts

Thinking about the employment number to be released in 3 hours–I so much want the numbers to be soft, BUT I don’t see many reasons for them to be below the 275,000 (new jobs) expectations–the economic data simply has not been soft enough. Anecdotally, you hear news of layoffs and hiring freezes but whether that translates to the government numbers one never knows.

At this moment the 10 year treasury is at 3.84%–not really too far from the 4.0% or so it hit 10 days ago. Almost without a doubt a ‘hot’ jobs number will send it back to the 4% mark and our accounts, which are maintaining a level 1% above recent lows, will tumble to new lows. It was only a year ago that I was saying ‘all I want is a solid 6%’–now we have the opportunity–are we going to take it? I am–almost each day, although my cash position now is very small.

Economically speaking there is plenty to worry about now – as much as I can remember in the last 20-30 years. On a local basis we need rain–really bad–and this is a huge economic factor in a agriculture state. Barge shipments (for grain) on the Mississippi are being curtailed because of low water conditions–it has been said that some crops may be left in the field for lack of a place to go with it (not sure I am buying that). We had 1/4″ of rain in September and now are 8″ below normal and the Minnesota River is about a week from going dry–actually having no water in it. Globally one has to wonder how Europe (and everyone else really) is going to get through the winter with the global demand for LNG–utility bills are going to be high with the potential to go much higher. As I have mentioned before we buy our propane (for heat and hot water) about a year in advance so my cost is locked in–hopefully until spring. We got caught in a propane shortage a few years ago and paid about $5/gal for a tank of gas–about $2,000–ouch. Last year propane was $1.25 and we paid around $2.00 for prepaid a couple months ago.

At this time I expect we are going to see a 75 basis point rate hike in on November 2. We have 3 chances to reduce that to 50 basis points—the employment numbers today falling off a cliff (not likely) and a sharp reduction in the CPI next week (also not likely). The 3rd item is that something ‘breaks’–somewhere in the world and I am not sure we want that to happen. I think investors should mentally accept this rate increase–yes it may bring a bit more pain–but it is pain with a silver lining–higher yields to be taken advantage of by investors.

So it is time to buckle up my seat belt–equity markets could go straight up or straight down at 8:30 a.m. (central)–where it ends up no one knows. Or maybe it will surprise us and trade flat all day (I really doubt it).

11 thoughts on “Early Morning Thoughts”

  1. just some food for thought over the weekend. Feeling the pain like most. I “ran” my ytd portfolio loses and it stands at 6.91% I’m thinking I managed reasonably well and the “inflation” effects are the results.

  2. Two unrelated thoughts –
    1. we had measurable rain in Silicon Valley in September for the first time in a lot of years. None in the long range forecast, but a surprise for us. Its funny here – we usually don’t get rain May to October, so the first rain has everyone scrambling around to put things away that have been out all summer.

    2. On the energy front in Europe – I recall that LNG facilities were going into Portugal (Spain?) a few years ago and there was a proposed pipeline to move that gas through France and Germany. IIRC, that pipeline was killed by the “Greens” (particularly in France) because they wanted to more renewables, etc. (same silly arguments we hear in the US, esp. California today for banning gas appliances, gasoline cars, etc. before we have infrastructure in place to make those changes viable).
    If those lines had gone in, a lot of gas could be flowing into Germany to replace Russian gas.

    (if anyone has better recollection, please feel free to elaborate/correct me).

  3. Tim

    I suspect that the OPEC announcement on Wednesday may be more important that than the employment numbers this morning. We no longer have falling gas prices to offset food and rent increases. Maybe inflation won’t surge in October but it seems less likely to fall much. I saw two interesting points about increasing rates this morning. First, home owners and corporations refinanced a lot of their debt to lower, fixed rates. It may take a lot of increase to move the economy. Guess who is going to be most effected by rates: the US Government. Interest on debt in January was $34 B but it was $63B in August. By now we will be spending more on interest on federal debt than on defense per month. How much higher will the Fed be willing to raise interest expense before it feels it has to accept “moderate inflation”? I am sticking with F/F. Three month Libor reached 3.9%.

  4. Tim, Excellent front-lines intel.

    Adding on: late yesterday, national affiliate lenders 30-year fixed mortgage rate for high FICO/20% down/no buydown, once again pierced 7.125%

  5. Thanks Tim , excellent synopsis of where we are economy wise. Went through the same dilemma in 1979-80, do I lock in the the 10% bond now or would I be foolish not to wait for the 15% one. I have a much much shorter time horizon now, so 6% solid is good for me as well.

  6. Customer of mine in Ut. asked yesterday if we had slowed down. Gave me the impression she was asking because they were slowing. We are probably off the pace by 10% compared to last year. Normally with the start of the rainy season sales jump. In this area we had about 3/4″ of rain for the whole month of Sept. Not encouraging. Long dry summer led to long growing season and grape harvest seems to be ahead of schedule this year. Should be an outstanding vintage, and no smoke to taint the grapes. The smell of wine fermenting is in the air!

  7. That’s the same thing I tell myself to. Just knock in a solid 6 percent and walk away. Qdi preferred

    1. doesn’t the daily paper loss on these preferreds disturby you? I’m hopin u say no so i feel better!

      1. Franklin:

        Of course, but I try to focus more on the growth of my portfolio income and what I believe is the safety of that income. Never dreamed I would be able to buy such quality securities at these very attractive yields. Fortunes will be made when some of this stuff trades back near $25.

        I went through this type of environment back in 2013, although this one is much more intense.

        But compared to March 2020, what we are going through now is a walk in the park.

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