Interest Rates Remain Tame while Stocks Gyrate

I have been away for a couple of days and kind of out of touch with markets, but have to get back in the “swing of things” today or at least by tonight.

Interest rates have remained pretty tame for the last 3 days–it is hard to imagine them moving higher more than a few basis points, but we all know they can move lower on global weakness–and will eventually.

Powell speaks on Friday in Jackson Hole and hopefully he can get through the speech without moving markets around–really what is the point of even speaking, everyone knows where they are going with rates. On the flip side I guess the traders need a reason to move markets around–what else do you do during the deep dog days of summer.

19 thoughts on “Interest Rates Remain Tame while Stocks Gyrate”

  1. Advice needed:
    I have a hypothesis,
    I buy the REITS that can refi their debt at lower rates and will also see their assets rise in that new normal environment.
    Maybe, the common will appreciate because the assets are now more profitable.
    I will watch the Reit markets for confirmation.
    I will also watch which Reit Preferred issues will be called that are way past their call date.
    Is there a flaw in my Hypothesis?

    1. Newman,
      I play the spread, simply put. I own a huge chunk of O. Any company who calls themselves “the monthly dividend company” is not going to do anything that makes themselves look like a bunch of fools and O’s history proves that they are amongst the cream of the crop. Along with O, I own the common of WELL, WPC, OHI (well, until I finish selling it), and so on. On the preferred side, I spread the risk amongst AHH-A, BRG-A, CLNY-B, CORR-A, LANDP, LXP-C, NRZ-A and B, RLJ-A, SHO-E, STAG-C, VER-F and so on.

      Long term care, financing, strip malls, farmland co-op, hotel/motel, business parks and biz rentals, etc. Spread the risk…

      I pay close attention to when 1st calls are coming up much more now than I used to. Folks like PSA will redeem on the first call date as regular as rain. Others, it’s a crap shoot. Either way, I also pay attention to the financials of the underlying company. Have learned the hard way like many others. Chasing yield is no way to make a living.

      Rates are only one part of the equation here. Yes, falling rates are generally good for real estate, but not good enough to stave off a recession. Absent a recession or the signs we are entering one, I’m staying fully invested in real estate. Now, if the Fed would just shut up and stay out of the way – we’d all be better off.

      1. A4I, I have been selling cash secured Puts on O for several months now, and have not been assigned. I’m making a few pennies on them, but think I’d much rather own the stock and write covered calls.

        Suspect my strike price at $62.50 and $65.00 are too low – thinking I will crank up strike to $67.50

        In your opinion, what is your estimate of a strong support price for O ? Do you think there is a likelihood of O going below $65 on general market malaise?

        1. Inspy, you’re asking a tough question in these troubled waters… One single tweet or headline could send O down 10% just like anything else.

          I started buying O in the mid $30’s and made all my purchases before $60. I’ve collected A LOT of those monthlies…

          The 200DMA is low at $$60. During the December depths of hell, it dipped to $50. After scratching my head and saying hmmmm quite a bit, I think $65 would be a correction type support level. Would be hard to see it go below that unless there was a really bad problem going on in the markets. The financials of O still look great to me. Revenues keep climbing and look amazing over the past 4 years, for example. If revenues stall, I’d have to stop and pause, then watch closely – but to me, this is a SWAN holding and lower rates are only going to help it. I can’t see much of a reason to ever sell it unless they have an accounting scandal or make some real boneheaded moves but they are the best in the biz, IMO.

          All of this, of course, is just my opinion.

          1. A4I and Ins-

            Great discussion about O. I have owned this great performer for probably 25 years and, next to DIS, it is my largest holding in my personal account. I also respect their extremely transparent and simple to read annual reports. I serve as Executive In Residence at a business school for a northeastern college and every year I show the finance student O’s annual report and I suggest they speak as simply as the authors of the report do when making their presentations.

    2. Lower rates help real estate as they can re-fi and possibly improve profit margins which provides support to higher distributions and/or share prices. On the other hand, the real money is made in the real estate market through the appreciation of values via rising rents and rising surrounding values. How can rents go up, land prices go up without any appreciable inflation? Lower financing costs may support higher margins but what about rising deferred maintenance costs? No inflation spells flat line to me regarding real estate over the long term.

      1. Comcast must not be tied to inflation because they never have a real reason for increasing their yearly bills by an average of 10% or so. They do it simply because their market allows for it. Same with certain kinds and areas of real estate. Irregardless of inflation, they will raise just because they can and know people will pay it even if they groan a bit about it.

        In this tape, flat line sounds good to me. Boring is really good. Better than those who are cheering for a recession (morons).

        1. It isnt out of realm of possibility we get the worst of both worlds. Lower yields and increasing inflation. It already is creeping into the system at a higher rate recently. 10 yr is already below inflation rate.
          But we aint seen nuttin yet…In 1940s long bond was in 2% range and inflation sporadically ran upwards of 6% and more during that time. That sounds inviting doesnt it.

          1. AAA predicts gasoline prices to drop .25/gal this Fall. This will certainly help stave off some of that inflation if it rears up on its hind legs.

    3. Newman- There could be value in some Reits but also remember that when they try to grow…the new assets they are acquiring are at the new inflated prices so the old assets (and your current common stock) gets diluted when issuing new stock to buy the new inflated assets. I’ve been recently buying higher quality preferred shares like PSB and PSA around par…so only getting 5+% but sleeping easy..

  2. I’m going to go out on a limb and bet that some bond traders won’t think Powell’s speech on Friday is sufficiently dovish. And aren’t there minutes of the July meeting coming out today? After a meeting with two dissents, that might even be a source of complaints.

  3. Has Allstate announced any plans on calling ALL-D and/or ALL-E? Also, does anyone understand why ALL-D trades at such a premium to ALL-E?

      1. Yes a call of ALL-E would not surprise me but ALL-D is in the same boat and is trading $1 higher. Am I missing something?

        1. Not sure what to tell you. The new issue should bring in around 1.15bb, so this would allow them to redeem multiple outstanding issues. I guess others know something we don’t, or, there will be a lot of pain when a call is announced – which has happened quite a bit recently. I guess you have to ask yourself if the YTC or other pertinent metrics makes sense to you, knowing that they just sent out a new issue and have already told folks that they intend to use the proceeds to redeem outstanding issues.

    1. The price on the D makes no sense. I wouldn’t go 10 cents over par on any of the callable ALL issues. Someone in for some pain.

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