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?
Conditions as they appear:
The U.S. is experiencing low unemployment and historically low default rates on both corporate and personal debt.
Loan growth has been sluggish, primarily impacting small businesses, as larger businesses took advantage of refinancing opportunities during the pandemic. (Small Cap vs Large Cap growth rates)
Gold prices are surging as people seek protection against the economic impact of tariffs, which can often only be mitigated by devaluing local currencies.
Looking overseas, Europe is in a recession, China has attempted stimulus measures twice without success, and Japan’s currency fluctuations resemble a volatile Bitcoin chart. (Gut feeling energy cost lagging effects due to differences in local vs us dollar).
The Federal Reserve is not lowering rates due to weakness in the domestic economy. Instead, it recognizes that the strong dollar is creating extremely tight financial conditions globally, which will eventually impact the U.S. economy.
Globally synchronized rate dropping.
Micahc, enjoyed this with my morning coffee. Sums it up pretty good for the current situation I think. But where do we go from here?
We already had a decent year for gold, energy stocks have been up and down for the year trending down. Actually both would have been good to you if you were a trader, not so good if you are a buy and hold investor.
Things have actually started to settle down price wise on things we as consumers buy on imports due to the stronger dollar. Looking at the November Costco flyer good deals on TV’s and Computers. Local grocery store loaded with Xmas junk like decorations.
Troubling at least here in Calif. is the loss of jobs and new and continuing unemployment going up.
https://www.ktvu.com/news/californias-rare-job-loss-month
Also troubling is the increase in business and consumer debt and the growth in defaults.
As you said, worldwide other economies are lowering their rates but this will increase their national debts with slowing economies.
As investors what should we be looking out for and positioning ourselves?
I know some like Berkshire Hathaway have pulled back this past year and increased their cash. Because his ship is the size of an aircraft carrier it takes them longer to turn the ship. Us smaller investors can move quicker and I know some of us have been working at it longer than me and increasing their cash position to lock in capital gains and build up cash. I feel like I have started late and so far I have built up 20% cash in some accounts but I hear from others here that are in the same boat as me, we want or need the income and it’s hard to cash in stocks we bought at a good price and are giving us good income. The choices of what to keep and what to sell are getting harder. I almost feel like a polar bear on a melting iceberg. Companies are calling preferreds and baby bonds I hold and where do I re-invest the money to get the same income without going into riskier investments? At the same time I am looking out at the horizon wondering if a storm is coming or we get blue skies and smooth sailing?
Metals/Gold, Started buying late 90s after the 1979 crash painfully averaging down. Could not imagine waiting 33 years for a full recovery to happen. Dumped half my gold and all my silver. Not possible to go broke taking profits.
Stocks, Had an unbelievable run past few years took half off the table and moved it over to long duration treasuries (TLT). So far feel like an idiot but you can’t avoid the cycle. No idea what is going to break but it will and 0% interest rates / QE will happen again.
Energy, specifically the Canuk gang seem to have a screw loose with many companies promising 100% return to shareholders. Seems a perfectly shareholder friendly place to hide out.
Utilities, goes without saying even tip toed over to the common side.
Just happy the election is over. Canvassers where starting to give the dogs PTSD.
Micahc, Sounds like we had similar experiences. I jumped in on Gold and silver in the 80’s no averaging down as I bought my max. then I waited decades watching while the prices did nothing. Finally after 23 or 25 yrs my profit tripled on cost and I sold everything. Now, anytime I get to feeling like I need to buy gold or silver I buy gold stocks instead. Lot more liquid and no commissions on trades.
I’ve had the bulk of my cd’s and bonds called in the past few months. I’ve also sold the few remaining lower fixed rate perpetuals. I’ve reinvested in short-term maturity and ftf issues linked to the the 5 year Treasury and those with large % additions over sofr. Amazingly my port increased 1.7% over the past two months during which the 10 year went from 3.65% to nearly 4.50%. Unfortunately, my port is more exposed to a black swan event now. Sub 4% cd’s just don’t cut it for me. Maybe I should rethink this.
A good portion of my investing ideas come from here. Thank you so much Tim!
Tariffs similar to any other tax increase, just affecting specific things. Gold has been exploding awhile and for other reasons, I think mostly because other countries have been stocking up massive piles anticipating less dependence on the dollar as reserve currency. That would be ugly for us but would boost Gold.
Does anyone know where there’s a list of preferred stocks sorted by average daily trading volume, from high to low? Unfortunately, Tim’s master list doesn’t have volume figures….
You can add volume to Tim’s spreadsheet pretty easily. Just go to file, then make a copy. Then insert a new column wherever you want. Then in row 2 of the new column you created, enter =GoogleFinance(H2, “volume”). It’ll ask if you want to autopopulate the cells beneath. Pick yes. Then presto, you now have Tim’s spreadsheet including the volume.
Wow….that is a helpful post. Do you have a reference or link that I could use to better educate myself on using Google for “custom” data gathering like your example ?
The GoogleFinance function documentation is at https://support.google.com/docs/answer/3093281?hl=en
There’s a lot of available data points, and you can make it whatever time interval you want.
When the gov’t controls the cost of money in an exaggerated procyclical manner, problems result. The current cycle is expansion. Below a certain rate, the FFR will be (or already is) procyclical. That rate might be the current FFR. The long-end is saying so.
It might happen that the treasuries runoff portion of QT will be curtailed next year by the Fed. I’m guessing that the MBS runoff will continue.
Note the big revision for Sept (WSJ):
On Friday, the Commerce Department said that retail sales gained 0.4% in October from September, better than economists’ forecasts for a 0.3% increase. Officials also revised their figures for September sales growth sharply upward to 0.8%, from an initial estimate of 0.4% growth.
That 18B credit debt is almost 2/3 of our GDP, but I think they include mortgages- hard to avoid vs credit cards and auto loans, etc.
The problems are in credit card and auto debt, not mortgages, HELOCs, or student loans.
Right- that’s why I mentioned mortgages- not as bad as it looks- but some bad areas.
Is the website acting oddly for anyone else today? I saw a post in the ill area about CNLHN. I replied to it saying thank you. I cannot find the original post on the ill forum and when I click my own reply under recent comments I am not taken to it. Just slightly older posts.
Just wondering if it is only me?
I deleted it when I saw that ask was gone quickly, sorry!
A good time to do nothing. Collect dividends and see what is going to happen.
Great comment on recent F F Rate Cut focus…. seems that your read is on top of the CME FF Fed Watch data.
As of pre-open Friday ….. per Future Mtgs …. from CME site
Dec to 4.25% ….62.4% Problty
Jan at 4.25% ….55.5% ” ”
Mar tied at 4.25% ( 39.1% ) / 4.00% ( 39.%% ) Problty
May to 4.00% ….. 39.3% Problty