Well we had a good run lately, but today reality comes home to roost and it looks like we will doing a little giving back today.
The 10 year treasury which was at 3.51% before the employment number was released jumped to 12-13 basis points when new jobs for November jumped by 263,000 versus expectations of 200,000. The unemployment rate held steady at 3.7%.
So with this jump in new jobs it is highly likely we will see maybe a 1/2 to 1% giveback in the average income issue—this too shall pass. A good day to observe or maybe if a target issue on your watch list drops a little bit one can pick up some shares.
At this point this singular number will not change my expectations for a 50 basis point rate hike in December–BUT there will be a CPI report on the 1st day of the FOMC meeting—so nothing is 100% for sure–in spite of Powell’s near promise this week to back off increases.
Such is life–always something to worry about.
It appears that a recession is certainly coming in 2023. The unknown issue is whether it will be a “typical” recession in which interest rates come down or “stagflation” where interest rates stay high like in the 1980’s. That’s the $64K question! (Most of you probably don’t know what $64K refers to.) If one thinks that rates stay high, there’s no need to lock in current rates before they dramatically fall. You might not catch the highest rates, but a rate that is certainly acceptable. That’s why I’m about 75% invested and waiting to add to my positions if/when rates go higher. The remaining 25% is in a short term Treasury MMF at 3.5%. If it becomes apparent that rates have peaked, I’ll invest the balance of my funds at lower rates, but ones that are acceptable to me. (At least that’s my sketchy plan for the moment.)
Randy, I agree, but add the following.
IMO the markets have priced in a minor recession, and it appears that the Fed is using a minor recession as the signal for “weak” growth.
The other 64K question is “what if the recession is worse than expected and the market moves down another leg?” Rates may stay low but if the economy tanks it has no mercy, and preferreds sink along with equities. I am not forecasting a major recession, but I account for the case in my portfolio strategy.
Cheers!
Btw. I remember watching the $64,000 Question with my dad…it was a big deal! Sometimes I yearn for those simple days. Phones were connected to wall and only used for talking , and if you had a shared phone you could listen to your neighbors conversations. If you said the “S” word you got in trouble. Teachers had paddles (never got one). Life magazine and Max Max were my go to magazines. Everyone changed their own car oil and knew how to open the carb choke with a screw driver. When the soles on your shoes wore out the shoe repair guy would put on new ones. Only the rich people in town went to Florida for winter vacation. School started the day after labor day and ended the day before memorial day. A quarter for weekly allowance was good money! And of course everyone had chores. Your home equity was your eventual retirement. Mutual Funds were exotic. Gas was 39cents a gallon. Televisions were black and white, and when the picture got blurry, your take all 20 tubes out and test them and the local drug store. Summer vacation was daily pickup games of baseball and the swimming pool. Home made sling shots and bow and arrows were made for warrior fantasies. You came home for dinner when you heard your dad whistle from the distance. And of course living in Minnesota, you earned money in the summer by mowing yards, and in the winter and shoveling snow. I think we were rich!
Cheers!
A nostalgic day.
windy
I think we lived nearly identical youths. Only mine was in NM, and Was more of a newsy- delivering about 130/day by bike over a wide area. hated having to collect tho.
Don’t get me started… 😉
My generation will be telling our grandchildren that we could survive with our trusty iPhone 5’s.
And they will have no idea what we are talking about.
PN, remember when having an extra long phone cord was “high tech”
My mom give me 25 cents or so to go to the matinee showing “It’s a Mad, Mad, Mad World” and buy a popcorn and pop. Bazooka bubble gum was a penny and ya even got a funny cartoon to boot. We’d come home late at night on Halloween with two or three grocery bags full of candy and change – wow! Instead of going to the cafeteria with my lunch money I’d sneak out to the nearby bakery and buy five Long Johns for 50 cents. I mowed yards and shovelled snow for what would seem practically nothing today. Those pickup tackle football games when I was elementary school age are some of my favorite memories.
Not all was great – we picked up my grandma in Detroit during the ’67 riots and I didn’t understand what was happening. Looking back the riots changed everything in the Detroit area.
Tim, reading all the comments in the Sandbox about Blackstone I might venture to guess there could be a rush to dump REITS in the next few weeks. Probably a few babies getting thrown out with the bath water reaction. I might be looking at a list of REIT preferreds I would like to own. Just a thought.
Wait, I thought all the nice good government officials told us inflation was just “transitory”… Last week one of my good friends told me over dinner that at the 13 retail loan centers he owns; the day after Thanksgiving laid off over 200+ employees with 2 weeks severance and a company t-shirt in their goodbye goody-bags. Chairman Powell and his buddies are still employed 🫤 and doesn’t remember just why he said he was the man to accomplish a soft landing https://www.youtube.com/watch?v=3vEEh0GF_C8
Azure:
Thank you for that view from the trenches. One of the better features of this site is when users comment on what they are seeing in their own personal worlds and areas of the country regarding the economy.
My understanding is that the heating oil bills on the East Coast are going to be shockingly high this winter.
Here is what is going on in Nevada regarding utility bills:
“Both NV Energy and Southwest Gas are raising their rates in both Southern and Northern Nevada, according to filings with the state Public Utilities Commission.
NV Energy’s electricity customers in Southern Nevada will see an average increase of 14.4 percent across all customer classes.
Southwest Gas, the primary gas utility for Southern Nevada, said its rate increase in the first quarter will range from 4.3 percent to 8.2 percent, depending on customer class.”
Powell’s soft landing forecast is likely a fantasy.
Increase, what increase ? Here is a real live increase proposal. The New York State Thruway toll road proposes to increase it’s rates by 75% in 2024 for drivers without an Easy Pass, which increase will only be only 10% starting 2024. A driver who goes from the first to the last toll station will pay a ridiculous fee, even with an Easy Pass.
Howard, I assume the toll road authorities are floating bonds, you wouldn’t happen to know the name they would be under to look them up would you?
You’re not looking for the New York State Thruway Authority, are you, Charles? Pretty imaginative name don’t you think???? 😉 https://www.thruway.ny.gov/about/financial/monthly/index.html
https://emma.msrb.org/IssuerHomePage/Issuer?id=38BCD4EA315C8990CF82F447F62EDDE3&type=G
2WR, as I suspected looking at the links they are the same or similar bonds held by mutual funds. What I mean is when we decided to move my wife’s 401k to an IRA we had to decide what we wanted the money in. With her having lost 23% in the 1st 9 months of the year with growth funds I wasn’t sure with the feds increasing rates and a recession looming it was the best idea to swap growth funds for growth funds. The funds offered to employer 401k’s are not offered to personal accounts. Similar but not the same.
I wanted to go with bond funds and the advisor gave us a list of funds. I am not as adapt as others here when it comes to researching. I looked them up on Yahoo and the T Rowe site and I drilled down to look at the bond holdings.
Lets just say I wasn’t impressed at the rate of return on A rated bonds. Also the performance of the mutual funds for this year didn’t impress me.
So like others here I am trying to do it myself.
Northwest Washington state which is already a high cost of living area has seen rampant inflation especially concerning anything involving services or labor. One recent example, last month we had a service call for our garage doors. The service call fee was $175 plus repairs and we are 1.5 miles from their shop.
Property value assessments are up about 30% from last year and neighbors are holding their breath waiting for the new property tax bills for 2023 to arrive. It is my belief that after the holidays we will start to see some meaningful contraction of consumer spending.
Well, I hope any pre- or post-holiday contraction offers up some nice wine bargains. Haven’t seen many of those lately. 😉
JMO
What are you looking for Camroc ? I pulled out a nice Chateau Bardoulet Saint Emilion Grand cru 2015 last night 🙂
But I think it was a purchase from last yr.
Gary—I live part of the year in the puget sound area and part in California, which is where I am now. Last week, my lateral sewer connection line backed up and I had to call a plumbing service. The guy came out and quoted me $400 to roto root the short distance lateral connection to the main sewer line. It’s a 10-15 minute job.
I said no way and he said ok how about $350. I said $250 and he said no way. I said you’re out here and don’t want to go away empty handed so you better reconsider. He hesitated for a little bit and said $300 was his bottom line. I said $275 is my best offer—take it or leave it. He took it.
Had a guy we’d used previously check out two small trees for removal. He rocks around a little on his feet and indicates a removal price of $1,100. I say nothing and just stare at him. He then says, OK how about $600.
Natural gas is still the cheapest form of heating a home and our country has plenty to go around. Unfortunatly many cities in coastal states are actually outlawing the installation of new natural gas to customers. It will be a sad future for many of these locations, at least that’s my thought.
As for the good employment numbers, I can’t believe no mention of the fact that this can be unreliable do to temp workers for the holiday.
William E, I am in Ft Lauderdale so we really don’t have heating issues. I own many thousands of acres of land in (primarily) Kentucky, Tennessee, North Carolina and Alabama. I always suggest those that rent my properties heat with the trees that are on my land. It is foolish to pay for gas or electric when an incredible amount of trees are there to be use as heating and energy material. I grow trees on my of my properties and could never contemplate just why anyone would pay for electricity or nat gas when trees are so prevalent and free. Wishing you profitable investing, Azure
Ab, can I ask you a question? I assume 2 of the states North Carolina and Alabama that you have property in, that the trees growing might be for commercial harvest? If so, my reason for asking is what is the market looking like for offers you are getting on the timber? You taking offers? or passing as the price per acre for pulp and timber went down?
Because of my background I am looking at buying bonds for some of the paper and timber companies. Returns are starting to look good along with the YTC for some of them. Safer bet then buying the stock in a recession.
Charles M, thank you for your questions. The timber spot price (1000 board feet) closed Friday @ $396 and we closed December 31, 2021 @ $1142.90, we peaked in March @ $1450 so most of the private land owners I know are just growing trees (not cutting) until the price rebounds to higher levels. The current lower price is a direct result of the Fed dramatically raising rates and slowing down new home construction. The war in Ukraine and the sanctions against Russia and Belarus have squeezed global wood supply as well; they account for about 12%/15% of global lumber exports. The last time I contracted to cut many of my properties was March-May 2021 as the spot price was much higher and I was planning to do a fifth cut sometime in 2021 regardless of prices. I’d be a bit cautious as you stated you are looking for bonds of timber companies. I’d read the last quarterly earning report to see what the lower lumber price is doing to their business and what debt levels these companies have. I’ve looked at shorter International Paper bonds (monitored them for about a month), but the spread was so wide pushing the yield too low IMHO so I haven’t bought them. Hope that helps and best of profitable investing to you, Azure
interesting Ab, Long time ago one company I worked for Rosboro Lumber, had an export / Import business besides mills and distribution yards. They brought in Siberian Larch but it didn’t sell as the lengths were in metric.
Been looking at WY, RYN , BC
For those that don’t know 396 a thou was what GP, LP & WY were getting 30 yrs ago at the dist. level and doing 8 to 10% margin.
With WY being a REIT around 32 a shr. Friday wouldn’t be surprised next qtr. there is a dividend cut especially with the winter slowdown. I’ll keep watching the bonds.
I don’t know of a better indicator of future economic slowdown. Everyone raised their prices this past year and prices have come down but not to the point companies are trying to buy business (yet)
Azure, a rare day when I disagree with you, but today is the day. Using trees for heating is not a good idea. The energy efficiency is so low compared to nat gas as to make it impractical, certainly on a large scale. We proved this about 100 years ago. Back then, there were a few wood powered- steam generating cars. They were also some in WW2. The miles per unit weight of wood was very low, although I do not remember the exact number. Compare that to miles per unit volume of nat gas, heating oil which is basically the same as diesel fuel or regular gas.
This is the reason there are NO vehicles on the market powered by wood. And when you are harvesting wood for fuel, it is reducing one of the main sources of reducing CO2 which worsens global warming. Also the same story for trains which were coal powered, NOT wood powered. Energy density of coal is also much higher than wood.
The only time it makes economic/environmental sense is what you have no other choice. This is why some German forests are under attack this year due to citizen harvesting. They think they have no other choice. . .
BTW, like you I am long term bullish on wood. We have small allocations to WY in many accounts.
Impractical on a large scale, yes… However there are those working on small scale, small but perhaps enough for small communities – https://www.saatotuli.ca/other-equipment/electricity-from-woodchips-and-pellets/
https://volter.fi/
https://www.envivabiomass.com/modern-biomass/about-wood-pellets/
https://news.mongabay.com/2020/07/burning-down-the-house-envivas-giant-u-s-wood-pellet-plants-gear-up/
But how do you pelletize a tree??
2WR, two pelletization plants in the US South have gone bankrupt over the last few years. The pellets are mostly shipped to Europe AFAIK. I am not aware of any large scale use of them in the US. Venture capital is going to deploy about $200 BILLION this year. If wood pellet heating was the key to the future, you would think they might throw a few coins that way. Maybe I missed those announcements. In the meantime, VC’s are funding small scale nuclear reactors. VC’s are also funding space solar panels that will transmit microwave power back to earth.
https://www.caltech.edu/about/news/space-solar-power-atwater-hajimiri-pellegrino
Understand I wasn’t disagreeing with you, Tex… On the surface, the idea just doesn’t seem to fit in to today’s impression of clean energy imho but I did remember seeing how it was still being worked on….. I say “still” because my memory of yesteryear in the muni bond business was telling me there was a time probably back in the 80’s when municipal pollution control bonds or perhaps industrial revenue bonds were being issued for power stations to be run on pellets of some sort, but now my rapidly aging brain couldn’t come up with the details. I did know of a few failed attempts from those days though… I always thought the idea of wood pellets for fuel stemmed almost entirely from the use of waste products of paper mills and sawmills etc., but not directly from forest trees…
Note to self: I may have been confusing wood pellet technology with waste to energy recycling plants and their production of fuel pellets from waste recycling… I know my firm was involved in the Hempstead NY waste to energy plant which was one of the first of their kind to use the technology.. It was fascinating to learn about, but then again I know I was fascinated by visiting NYS Power Auth facilities (another Authority for which my firm was the investment bankers) and learning about hydro power and pumped storage technology as well so maybe it was just me…. As I remember, once the plant became operational, it ran into tremendous practical difficulties and may have been considered a failure… however, in one form or another I think it’s still there now run by Covanta.. https://www.covanta.com/what-we-do/waste-to-energy
Follow-up on Tex the 2nd’s note posted a month ago:
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On Tuesday, the Caltech Space Solar Power Project launched into orbit a prototype, dubbed the Space Solar Power Demonstrator, which will test several key components of an ambitious plan to harvest solar power in space and beam the energy back to Earth.
https://www.caltech.edu/about/news/caltech-to-launch-space-solar-power-technology-demo-into-orbit-in-january
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Thanks for the idea to subscribe to the Caltech Weekly newsletter – very interesting stuff.
Don’t know of anything more efficient than being able to heat your home for $0 cost in northern Indiana, which is what I did for 14 years when I owned 45 acres which was partially wooded and recreational land. It was a highly efficent add-on to the normal furnace system which used the blower and duct system only. Also planted new tree seedlings provided free from the state. I enjoyed cutting and chopping the wood, there’s nothing better to relieve the stress in life. Do admitt it’s not the best choice enviromentally.
Why would you think wood is not the best choice environmentally? Trees pull carbon from the air (powered by sunlight), then release it when they are burned, and your new trees pull it out again. Truly carbon neutral. Think of it as very slow solar power.
If you ascribe to the “human-caused global warming” faction, wood burning fits right in to reducing net carbon emissions.
Particulate pollution from wood smoke can be a problem in some urban areas, but it sounds like you are not in an area like that.
Tex, thank you for your reply. I am primarily based in Ft Lauderdale, so I am dependent on Florida Power and Light for my electrical needs (today we hit 81 degrees) and they generate by nuclear in my area. Wood is a renewable source of heating/energy (nat gas is not) and at my other properties in the Southern US we Heat with wood ONLY. I have looked at putting in solar (and am getting quotes on one of my larger properties this week), but at this time I’m extremely happy to use wood as I have almost an unlimited renewable supply. Once you become solely dependent on the electric grid (and have no alternative), troubles begin. Just ask those in Europe that were/are dependent on Russian natural gas, in California where they told their residents to stop charging their Tesla’s because the grid could not handle the electrical output or many other areas where the grid has to be shut down because of unforeseen issues. Wood heating has none of those problems and has been used for thousands of years. Is it the most effective or efficient; no, but it is
free and since I’m a pro/commercial tree grower it is truly free and easy.
Some of my favorite quotes: The clearest way to see into the Universe is through a forest wilderness.“Trees give peace to the souls of men.” “If you would know strength and patience, welcome the company of trees.
Be well my friend, A
…and storage lots. Another home run. Very few employees.
Love the tree idea. Not a fossil fuel and is absolutely renewable. Not taking Elon or any other nomads to the moon, but a fabulous contributor to the big picture over the years.
Alpha, I built from raw land I had and owned (to grow trees) the largest boat & RV storage facility in Ocala, Florida. I sold the operating property December 28th, 2021. I got very lucky that during the 7 year ownership that the largest FedEx distribution facility in the state opened, next to Chewy’s distribution facility, next to Advanced Auto parts massive distribution center and then Amazon built a 800,000+ sq feet facility all within about 1/2 a mile of my boat & RV storage facility. I was getting calls from realtors every few days. One of the reasons I sold was that I am worried that corporate taxes will skyrocket as the Federal Government will have to lean on those making gains, higher income earners etc to pay for the $31+ TRILLION of debt our elected morons have racked up https://usdebtclock.org/ and I wanted to lock in my gains. Trees are different, they don’t care about political events, whom owns them or need to be stroked and will grow. 5-9% each year as long as they are unencumbered 🍒
Smile, Azure