If you read the FOMC minutes from the July meeting you know that they are backing themselves further into a corner relative to a interest rate cut. A rate cut will happen in September UNLESS we get hot inflation news and/or huge employment gains in the data to be released in the next 3 weeks or so. It is getting harder and harder for the Fed to renege on this action. Can you imagine equity market reactions if they do not cut?
This morning we have the 10 year treasury at 3.83% which is up from the close yesterday at 3.78%–really just noise, but obviously we are trending lower. Tomorrow with Jay Powell speaking this could get pushed down further, although with the ‘promise’ of a rate cut already known and memorialized in FOMC minutes there isn’t much that can be added to that conversation.
Equity futures are up mildly this morning–awaiting jobless claims numbers in a few minutes–each piece of data is critical importance. We get the purchasing managers index at 8:45 a.m. (central time) and existing home sales at 9 a.m.–typically not important numbers, but EVERY piece is now important.
Last night the Carlyle Credit Income Fund (CCIF) announced earnings and generally as expected. This holder of CLOs has a asset coverage ratio of almost 300% which generally matches that of other CLO owner (i.e. Eagle Point Credit, Oxford Lane Credit Company)–all of them are up near 300%. Excellent performance out of these company’s for holders of senior securities (preferreds and/or baby bonds). CCIF is just a $152 million CLO company and is much smaller than ECC or OXLC, but you can be certain they will grow assets over time with sales of common shares–and then eventually more term preferreds. The company has a term preferred outstanding with a 8.75% coupon (CCIA)–disclosure that we hold a full position in this issue.
Well let us get the day underway and see if the economic numbers confirm rate cuts or if it gives one pause. As I do everyday I am looking for something to buy. I see potential targets out there–but am having trouble pulling the trigger–must be my age OR maybe it is simply complacency with were I am currently positioned. We’ll see.
We have basically the biggest downward revision (28%) ever to payroll numbers, and nobody is discussing that. FOR A FULL YEAR!!!!!
I know it’s summer doldrums vacation time but that’s huge.
When asked the Commerce Secretary denied the report. Then said she didn’t even know what they were talking about. Go back and watch her on 60 minutes. 13 minute love fest of her deep knowledge and skill revitalizing America, and the world.
Three months later she doesn’t even know what the payroll report is. You just can’t make this stuff up
Its back to school here… I think more likely the media got the “do not amplify” msg.
IYP – remember that the treasury secretary’s number one job right now is to try to keep her job by getting Kamala elected. Full stop. Everything else is a distant lower priority. Sorry if this sounds political, but the party in the white house always tries to use the executive branch to its benefit in election years (although the dems are MUCH better at it).
I fully expect another big jobs report next month, and another right before the election – and anything else she can do to goose the economy or market for a few weeks (until the voting is over).
All the revisions after that won’t matter. Judging from current reactions, revisions don’t seem to matter at all.
Page 7 of the FOMC minutes. “However, many participants noted that reported payroll gains might be overstated …”
They knew in July.
That is if you can even TRUST the data
Any stock market historians out there?
Can anyone recall the Fed starting an interest rate cutting cycle with the Dow, S&P500, and NASDAQ all at or very near all-time highs?
When the cut comes in September it will be sell on the news as the cut has already been factored into the prices.
Stephen, I’d argue multiple cuts have been factored in.
If they go 50 bps then I think the market could go either way.
Am guessing 25 bps but there are future cuts to still consider and whatever else may be going on.
Stephen,
I agree with you. When the rate cuts become REAL, the market will then in its bipolar thinking actually realize the Fed is starting to cut because it knows there is true trouble on the horizon versus the hypothetical notion that there could be trouble.
Cutting rates has *almost* never actually resulted in holding prices up historically. Always possible, maybe not highly probable, it will be different this time.
Correct, sell the first rate cut as they say.
Because rate cuts happen when the economy is faltering. I don’t understand people rooting for a bad economy so rates get cut. Bad news is good news to them. There may be a short term pop if the cut is bigger than expected, say 50 points. But I wouldn’t expect it to last, it’s a selling opportunity.
Martin, your pretty astute on the different preferred and BB we talk about here. I can see your reasoning for maybe selling some holdings that have run up in value, but some may be hard to replace at the cost we purchased at. I can see buying them back as the market drops but not sure of the odds of getting them at what you originally paid and you might even miss a dividend.
I am mostly satisfied with my positions and would look at any drop as a buying opportunity if I could get at favorable prices.
Charles, this is my “feeling” too but you never know. Personally, I have sold limited number of shares in some issues when their prices went up appreciably, now I cannot repurchase them at the price I sold them at and will probably miss a dividend payment. You make a great point unless interest rate trend reverses, which is unlikely in the short term.