Markets have have been absolutely giddy about coming rate cuts –now I hear all sorts of speculation on multiple rate cuts. Investors have a poor record of forecasting interest rates – we haven’t had a rate cut yet this year and yet when the year started forecast were for 6 cuts.
This week on Friday we have the personal consumption expenditure (PCE) being released and then next week on Friday we have the August employment numbers being released. I think these are the 2 most important numbers we will see prior to the FOMC meeting which starts on September 17th–these will drive the size of the rate cut. I believe that a 1/4% cut is going to happen with what we know now—no matter what the data says–Powell has once again backed himself into a corner with his dovish tone of late–certainly markets expect a cut as the CME Fed watch tool is at 100% with 25% expecting a 1/2% cut. For a 1/2% cut to happen we need to see weak employment. If we were to see a strong bounce back from the weak 114,000 new jobs created and 4.3% unemployment rate of last month the big rate cut is unlikely. Well we will all have to continue to speculate for another 3 weeks until the meeting.
Equities continue their march higher –and fortunately income issues have been nice gainers right along with common shares. This in spite of interest rates being stuck in the 3.80-3.85% area. So the big question is how much will interest rates on longer dated maturities fall when/if the Fed Funds rate is cut? The supply of debt from the treasury remains massive and this will continue for as far as the eye can see.
Today I will be a buyer of a term preferred security–continue to work my way higher in allocation to preferreds as other competing coupons fall. At this moment my Gabelli Treasury Money Market (GABXX) is giving me the best short term coupon at just over 5.20% and I continue to have sizable holdings there–I expect that to fall with Fed Funds rate changes next month. CDs are in the 4.95% area for 3 month paper–not overly attractive, but not the dregs either.
Personally I’m heavy cash and cash equivalents right now. In my mind anything maturing this year is cash. Regardless of the rate, it’s temporary at best!. I tell people before you even see it on a statement it’ll have matured!
Just had some citi’s and Regions called. I anticipate heavy call outs here once 9/15 gets here!
Tim
Which employment data do you trust anymore? Establishment, Household or ADP?
Sold the last of my CUBB today at 19.60 cash is up to 23% in one account.
Bought more of Tim’s local bank BWBBP lot higher than my original cost basis in the 15.00 range but bank seems solid and YC is still good.
Tim, responding to your last sentence, “CDs are in the 4.95% area for 3 month paper–not overly attractive, but not the dregs either.” a question I have been wanted to ask for a while.
Since indeed CD rates are fairly low now compared to a even few months back I am lately tilting a bit more towards T-Bills in my taxable accounts.
Reasoning is that assuming one is in the 10% tax bracket, the 4.95% CD effectively returns 4.5% whereas similarly term T-Bills can still be found yielding 5.2, 5.3%, federal tax free (both are subject to state tax, where applicable), a not insignificant difference. Of course when one is in a higher tax bracket the difference becomes more appealing.
Of course I don’t mind loaning Uncle Sam some money now while at the same time reducing what he wants from me come April.
Is there a flaw in my logic or another reason why one would advise against this “strategy”, or does it make some sense to you? TIA!!
I think T-bills are fed taxable, but state tax-free. Still, I prefer them over CDs for very short-term duration (90 days). I’ve been laddering them for months now.
Oops, you are 100% correct, my bad. I know they’re state free, but somehow I always say or type it the other way around. Silly me…
Glad to see you’re thinking along the same line; appreciate the response.
I am so fully invested at this stage. Pretty good deals over the last year compared to prior years. I definitely aimed and took the shot. The only cash I have on the sidelines is a large slug of SGOV but I was reserving that for a possible down payment on property. I am just reinvesting dividends/interest, paying taxes out of pocket, and watching much older positions slowly recover. Newer positions are really green.
There is not a whole lot to do right now. I add money from time to time but now seems to be a waiting game to see what happens.
I feel the same way but still looking for things to invest with as divvies and interest come in and as treasuries and CDs mature.
Yazzer,
For the last few weeks with summer vacation going on I just lazily bought up the most frequent ills we discuss often. 6-6.1% well under par. It was the easiest thing I could think of while drinking long island ice teas and being with family. Just hop on the phone for a few minutes and make the purchase. Done.
I didn’t see any reason to try to squeak out any additional yield at this stage which might mean more risk.
“Today I will be a buyer of a term preferred security”.
Which one?
I was looking earlier today at Tim’s bond and preferred list and looking for short term to me would be 2025 and 2026 There wasn’t much as far as I could see. Nothing yielding 6% which is my target range right now. There’s a few close if maybe the market would retreat.
KTH and EP-C mature in 2028 and have been available for a YTM above 6%.
In the Aaa rated bucket, TVC and TVE mature in 2028 and 2029 respectively. Both have had YTMs around 4.6% lately.
TVE actually started the week offering 4.90% YTM or better….. I didn’t realize it until it was too late………….. That was something like 130 basis over the comparable TVA ’29 1k issues…. I own both but I have them on my list for the day when cash proceeds replace my 2.25% mortgage…. Continuing to own a home is not a part of my future but covering my overhead with low to no risk securities is………. The way things are going, rest assured rates will reach bottom within a month of my house selling..
NVDA earnings is going to impact things on Weds after market as well. Perhaps that could lead to some kind of tech sector correction. Today it’s looking like futures yields on the 2Y and 10Y are up so maybe some small opportunities before things change.
I haven’t seen much today despite yield changes. Always have eyes on the illiquids…
Hindenburg doing their usual- citing ‘red flags’ at Super Micro- off ~ 10%. NVDA owners probably thinking- are we next? NVDA is up- so maybe not.