Jay Powell Taps the Brakes

So yesterday Fed Chair did what he should have done a month ago–he tapped the brakes on potential Fed Funds rate cuts. It has been rare in the last year for Fed yakkers to lower expectations of what will happen to short term interest rates–instead continually setting expectations for further rate cuts. It is my view that we are in a good interest rate position–maybe short rates could go as low as 4.25%-BUT with what we know today there is no reason to get carried away to the downside. The Fed needs to save their bullets for when the data says we need cuts. Additionally the Fed balance sheet is still being ‘run off’ with balance sheet assets now under $7 trillion for the 1st time in years–this tool is still available for the Fed–to decrease or increase the run off rate. So the Fed has multiple tools available to affect interest rates–use them when data says it is needed–NOT when they back themselves into corners by yakking.

So this morning we get retail sales in about 30 minutes–last month we had a report showing strong sales–the forecast for today’s report is for modest growth in sales. Interestingly I was reading yesterday a quarterly report from a Canadian subprime lender (can’t remember who it was) showing bad loans went from 12% up into the 20% area–obviously Canadian sub prime borrowers are under pressure. Also it was reported a few days ago that the amount of debt that consumers have continues to rise quickly–almost at $18 trillion and delinquency rates are elevated at 3.5%. At some point in the future this isn’t going to end well–who knows when that time will come.

Well the 10 year Treasury is trading at 4.44% right now–in the area that it has been in for a few days–waiting for the supply/demand dynamics to move it up or down. Retail sales in 30 minutes could move the rate. Equity prices are lower this morning – attributed to the Jay Powell caution on interest rates earlier in the week.

No buying or selling is contemplated today in our portfolios–JUST collecting dividends and interest and today is a good dividend date (November 15). I have been noticing that a lot of the perpetual high quality, low coupon issues are off $1-$2 from their recent highs–they are tempting, but with at least a 50/50 chance of higher long term interest rates why would I want to buy these issues now?