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Fed News Today Likely to Spur Volatility

It has been a relatively wonderfully quiet week in the marketplace–both equity and interest rate markets. We have had 2 days of interest rates moving in a 2-3 basis point range. Equities have move in a close range as well–and I always love quiet markets. While these quiet markets are ‘boring’ I have always liked to just sit back and collect my interest and dividend checks–only the talking heads on the boob-tube want high volatility so they have something to talk about.

Today we are very likely to have sharper movements in these markets as we get the Fed FOMO Meeting Minutes from May at 1 p.m. (central) today. Honestly you would think that we know the thoughts of all the Fed officials given how often they are out there yakking, but the algos are always reacting to ‘news’ and all the ‘talking heads’ will act as if there is a great find of news in the minutes–and maybe there will be. We’ll see what it brings–maybe we’ll be surprised and nothing will change in the markets–another quiet day.

We also have existing home sales for April being reported at 9 a.m. They are forecast to be up a bit from March. No reason to think this is very important to markets. The ‘haves’ are buying whatever they want–regardless of ‘value’. My personal observation is those buying $500,000 to $800,000 houses in Minnesota aren’t getting much for their money. Yesterday I got an order to appraise a property under contract at $615,000–1700 sf rambler on 7 acres–nothing that great (a nice house though). The next recession could be ugly because of the potential for real estate value setbacks–but maybe we won’t have a recession again in my life time.

Yesterday I spent an hour or two looking at the preferred stock from Brookfield Property Partners. There are 4 issues outstanding – all with current yields over 10%. Recall that Brookfield Property was taken private in 7/2021 by Brookfield so there is no longer a Brookfield Property Partners common unit trading–BUT they do file financial reports as if they were a stand alone company. The real estate company is pretty massive–over $100 billion in assets, but they have bunches of shopping malls etc. When you are as massive as BPY it is tough to change directions quickly–so they continue to show healthy losses. I am thinking I won’t be buying any of these securities soon.

So my hunt continues today for something to buy–no rush–leisurely hunt you might say.

9 thoughts on “Fed News Today Likely to Spur Volatility”

  1. Did anyone catch the CNBC interview with Fed Gov Waller yesterday? Normal Fed speak, but there was one question towards the end of that interview that asked him if the debt was an issue. I might have to go back and listen to it but the answer seemed like a low key throw away line but he was alluding to the fact if it were to continue with the Gov’t failing to deal with it (I’m paraphrasing here) then perhaps the R star rate (or what the Fed considers a neutral rate) would have to be raised. Perhaps I’m not used to Fed speak but I thought that very short exchange was interesting. Neutral rate currently thought to be 2.5 -3.0%.

    1. Comment in the domestic Chinese press (very loosely translated, earlier this week):

      “The US is artificially keeping global interest rates high to keep money flowing into the US in order to stifle growth in China.”

      I actually laughed out loud.

      Our politicians simply aren’t that good – even if they wanted to try something like that.

      The ongoing trend of blaming all of China’s woes on the US continues to intensify.
      Fascinating how the craziness of the Chinese government’s statements gets worse as they continue to cut off more and more access to outside news.

  2. “Yesterday I got an order to appraise a property under contract at $615,000–1700 sf rambler on 7 acres–nothing that great (a nice house though). ”

    Wow…$362/sf for a small home in Minnesota?

    Assuming 20% down and a 7% mortgage rate, you are looking at $3700/month for mortgage payment. Not sure what property taxes are in various Minnesota counties, but at least another $500+/month.

    So $4200/month before any annual maintenance costs? This is crazy.

    I can see why apartment REITs are all starting to bounce back nicely from their lows. Renting is far cheaper.

    Tim – thanks for giving us this view from the trenches regarding the Minnesota single family housing market.

    1. Kid Twist; I think you forgot it is on 7 acres of land, sounds like they threw the house in for free. Where I live in CA, that would be about 1.5 to 2.0 million dollars, without the house. I guess all real estate is indeed local.

  3. Many thanks Tim for your monitoring the markets. As I am still fairly new to income investing, I was wondering what that FOMO meeting was about.

    1. I believe the meeting in question is the Federal Reserve’s Open Market Committee (FOMC). For the folks not familiar with the jargon…FOMO stands for fear of missing out, which is not in the purview of the Federal Reserve. 😉

  4. Tim, I am not sure how private equity companies are going to turn out. People like to think they are high net worth until they start losing money. Two years ago these PE companies were raising money and creating investment funds A, B, Z even as the real estate market changed. I would bet Brookfield is limiting redemptions just like others.
    I may not know what I am talking about, just a feeling I am getting.

  5. I have massive positions in 3 of the BPY preferreds and have done a lot of due diligence into their financials. Money good in my opinion feel free to reach out if you have any questions.

    Take a look at how BN parent recently paid off some BPY debt. I think over time as the unsecured and bond debt matures the financial profile is going to look very very good here and this can go back towards par.

    1. Daniel – I too have more than I’d like in hindsight (2200) sh of the Brookfield pfds – cost ~22-par… – and am heartened to see your unfearful comment on them. Have been trying to ignore they’re there and don’t have the will to take the losses. The fact BN is a huge outfit gives me some faith, but some (I have read) have a poor opinion of mgmnt’s integrity towards shareholders. If they’re supported overall by BN’s size perhaps they’ll be ok eventually, I doubt their structure is such that the company can “abandon” them.
      (A curious and probably unimportant thing I see are the quarterly distributions classified variously as roc, interest, special divi, etc. – summed up simply k-1 as payment for capital!)
      I will continue to hang in there ~~

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