Holy Moly!! WTH

I know you folks were all ahead of me in seeing the gains today in your accounts.

I was doing my real job for the 1st 90 minutes of the trading day and just opened my accounts–WOW!

Virtually all of my accounts have now garnered the losses from last week back again. While I am really happy about that I am not happy with how we got to where we are at.

Right now Jay Powell is on the tube–I long for the days when markets moved on fundamental data–not press conferences and interest rate cuts. Can anyone guess when interest rates rise again? Years ago I used to write that we are the next Japan–and we are–they have had negative interest rates for 20 years or so.

This is another chance to review accounts and if you were stuck with something you didn’t want last week you could consider lightening up on those issues and then ‘shop’ with the proceeds.

A person has to ask “are rates going to go higher or lower in the next 5 years’? If the answer is lower then the high quality, low coupon issues with call protection might be the deal of the decade–of course if rates move higher then you get hammered.

I did sell a little of the UMH-D just a bit ago–200 shares. I was up to 700 shares so wanted to take a little off that table–I continue to hold most of mine.

28 thoughts on “Holy Moly!! WTH”

  1. I don’t know how many here read The Heisenberg, but here is a paragraph cut from one of his recent posts on his site. It is a copy of a Swiss analyst of the world liquidity market. Basically I don’t understand all he writes except if I read it correctly the author is saying governments, banks then business’s will be selling their Treasury bonds to raise cash. Maybe the day has come where it takes a wheelbarrow full of bonds to get exchange for that loaf of bread Tim wanted.Pozsar then launches into a series of highly illuminating examples that drive the point home in characteristically trenchant fashion. Here’s one passage on tech firms, for example:

    Second, tech companies repoing their bonds to fund their suppliers are a similar story, but unlike banks, their port of call won’t be the discount window, but the repo market. Now, if the Fed is the marginal lender in the repo market now to the tune of $150 billion, a new marginal supplier of collateral will give the Fed no choice but to upsize its repo ops.

    Now think about what happens when deficit firms in hard-hit areas of the world beget deficit banks which in turn plead with their national central banks for help. Here’s the China example, from Pozsar (and I’d paraphrase this but, honestly, there are times when it’s simply not possible to paraphrase Zoltan):

    In the case that banks in China are overwhelmed with a drawdown of dollar deposits, their natural port of call will be the PBoC for dollar liquidity. In turn, the PBoC’s port of call will be dealers first in Hong Kong and London and then the primary dealers in New York. The PBoC – like all major central banks – keeps a portion of the liquidity tranche of its FX reserves in FX swaps, where they lend U.S. dollars in exchange for euros and yen. But if they need to start lending dollars to local banks through bilateral arrangements, China effectively flip-flops from being a lender of dollars to being a borrower of dollars in the FX swap market, and dealers in Hong Kong and London now have to find the missing link to their previously matched $/¥ and €/$ FX swap books. As the PBoC goes from funding carry traders in the FX swap market to helping local banks bridge dollar deficits, it naturally transmits local imbalances globally and carry traders end up holding the bag… …the Fed’s dollar swap lines could be called by FX swap dealers in London. Once the PBoC exhausts its dollar liquidity in cash markets like the FX swap market, it will next tap its Treasury portfolio and will either repo or sell those Treasuries through dealers in New York to raise more dollars to lend to local banks. The one place the PBoC won’t go to raise dollars is the Fed’s dollar swap lines – because it has no line to the Fed! China’s dollar needs will therefore stress private balance sheets in London and New York, not public balance sheets, unless a swap line between the PBoC and the Fed is created.

    And believe me when I say that he goes on. The full note is 17 pages and it is every bit as in-depth as you’d expect from Pozsar who has a reputation for rigor that’s pretty much unsurpassed as far as “mere” analyst notes go.

    1. Thanks for this post Charles M. But I need help interpreting the impact on our method of investing here on III.

      Wouldn’t the author’s view of a massive sell off of Treasuries result in a spike up for interest rates? Seems to me that would be the case and would have a pretty disastrous impact on us here.

      What would be the characteristics the preferreds or baby bonds that would best weather a vicious upward spike in rates?

  2. This rate cut was like premature ejaculation. The fed is blowing it with uninspiring results.

    While I’m no economist, it seems pretty certain to me that there are going to be much bigger disruptions in the near to medium term. I don’t think this is a doomsday scenario by any stretch of the word, but MANY more people globally are going to get the virus. Supply chains are going to get disrupted, businesses will feel the pain, consumers are going to sit and wait it out for the most part; then things will get back to normal (ish).

    I was supposed to travel to FL and GA in April. I’ve pretty much cancelled that trip. I do not think I am alone in my thinking. I have a surgery scheduled for the end of April. If hospitals are filled with patients, I do not think my surgery will even be an option because there will be many more pressing needs.

    Yes, this too shall pass. I just think the fed could have saved this cut for later down the line. Plus, it’s small businesses and individuals that will need the help, not wall street and bankers. Who is going to help the people who can’t buy food or pay their mortgage in a few months after commerce grinds to a halt?

  3. Don’t have a PhD in economics, but won’t the treatment here be worse than the disease in the long run? Is there a long term strategy anywhere in our future?

  4. Wall street wanted a cut, the president wanted a cut, the coronavirus heard news of the cut and didn’t care. If anything, this somewhat larger than expected cut backfired as it may have made people think that the Fed, Trump or someone knows that things are worse than what’s being conveyed to the public. Income instruments seem to be holding up much better than they did during last week’s bloodbath. Keeping an eye on a few things that I want to pick up.

    1. And still Synchrony Bank is offering a 2% 1 yr CD……. I don’t understand… I put some safety money into one……

  5. Not a political statement, but can’t understand how some people (President included) believe that negative rates are a sign of strength. Negative rates are a sign of economic weakness not strength!

  6. Rates have been negative in Europe for quite a while now. MMT pretty much demands it and the whole world seems to have embraced theory.

    If there is one thing humans in general, and governments in particular are good at, it is sticking someone else with the bill.

  7. Lower forever… Lowering interest rates makes owning individual preferred more attractive over funds that will have to cut distributions over time. It’s hard to know if we were given a second lifeline today before we get thrashed on Super Tuesday or a virus ramp up.

    The issues I want to dump are under water and too soggy to trade in so I’ve only been a buyer. With these lower rates, they will pop up eventually but then I will want to hold onto them again in a 1% yield world…

  8. “Buy the rumor sell the news” An old saw that’s so true for the Fed and stocks this week (so far).

  9. “I long for the days when markets move on fundamental data–not press conferences and interest rate cuts.”

    I love that!

    1. Jennifer–I suppose it is just an old farts sentiment–from the days when I had to wait for the Wall Street Journal to arrive to find out what prices and news happened yesterday.

      1. @Tim McPartland
        Yes, waiting for the Wall Street Journal…..throwing a robe over my pj’s and
        picking it up from the wet lawn, shaking off the rain water from the plastic cover. Pouring that first cup of coffee and spreading the newspaper on the counter and delving in. Those were the days my friend….

      1. Tim, thanks so much for your BEST ideas on the planet. After I woke up, saw the small drop, as expected. I went back to bed and woke up and saw what happened. Severe Fed rate cut and more tax cut ain’t going to make it whole IMHO. I quickly sold some of my ARCC (best of BDC for now; but may not be forever for sure) and bought PFIF-F @ $24.22. You and some have made me a believer on SAFE CLF, e.g. EP-C plus someone at Doug’s on ENJ (not a CLF but definitely a SWAN as long as the rate stays low). Next time, I will pay MORE ATTENTION. Live and learn. BEP-A is not a problem. Mixed bag. So far no crazy sellout on eREIT yet. Seems that common stocks of whatever could face more irrational risks. Rate cut(s) is not good for USA or the world IMHO. Lesson I have learned. CEF as some old school at Doug Le Du’s opined as risky. Nonetheless, any such position could be good if “blessed” by Tim and/or Gridbird. PERIOD.

        1. John if you ever get a posted blessing from me and its a BDC, Mreit, or shipper, just assume my account has been hacked! 🙂

          1. Grid, light on shipper and mREIT (NRZ preferreds) except occasional betting on a good dinner. Your SLMNP stays like a rock. Thanks and all my best,

            1. John, I certainly didnt mean to disparage them. Just not my cup of tea. Im a “Rainbow Coalition” type of preferred stock community member. 🙂

        2. The only hesitation I have with ENJ is that is thinly traded. The average daily volume is around 1,500 shares (approx $38K). I own several other Entergy Baby Bonds and their volumes are on average 10 to 30 times that of ENJ. Because of the low volume, with ENJ, you need to pay close attention to the Bid/Ask spread and make sure you use limit orders (not market orders). Otherwise, you might have a very sad story to share.

    1. The 10/1 ARM usually trades 1.25%-1.5% above the 10 year T-note. Right now it’s frozen at 3% with the 10 year at 1.05-1.15% . I guess it’s because the mortgage lenders are having trouble selling their packaged loans at these levels. Lenders count on making money doing refi’s in a lower trending interest rate market. This becomes a double whammy as their loan spreads in a flat curve really get compressed.

      1. Guess those garnered losses are back, now that the Dow is down almost 1000.
        Watching WFargo’s 15 yr re-fi- has changed twice today- up some , now back to last Fri’s level after being up a little yesterday. I think they are getting too busy to handle the calls, still waiting.
        My cat on the trampoline call seems to be playing out.

      2. Randy,
        I guess NewRiz who bought my ARM with 2yrs left will not be happy.
        I held my ARM for 28yrs and it turned out to be a blessing in disguise. If Rate were to jump 10% tomorrow, my old school ARM only allows 1/2% adjustment once a yr. to North coast cost of funds.

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