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Jay Powell Tosses Cold Water on Rate Cut Talk

In a speech yesterday Fed chair Powell has tossed cold water on any realistic hope that investors have for Fed Funds rate cuts in the next couple months. Honestly finally he has come around to where he should have been all along – that you shouldn’t be implying rate cuts just ahead when the data has not been tallied. I for one am not counting on rate cuts for any investing boost–I am more inclined to worry about rate increases. I really am starting to think the only way the economy slows to any great magnitude is that we have an event (what?) that causes widespread job cuts and sends us into a recession. We’ll see–we need the data.

Yesterday markets started to stabilize a bit – interest rates held near flat – up a couple basis points at 4.65%–this morning rates are at 4.65%–steady. Today the only economic news is at 1 p.m. (central) and that is the release of the ‘beige book’–so maybe markets will be steady to up a bit today.

I see that little ($5 billion in assets) bank CNB Financial (CCNE) released earnings for the quarter ending 3/31/2024 yesterday. CCNE has a 7.125% perpetual preferred outstanding (CCNEP) outstanding–now trading at $22.82 for a current yield of 7.81%. I skimmed over the earnings release and while I didn’t see anything startling I am able to come up with a long list of ‘what ifs’ on the negative side. I watch these small banks because they have potential to have preferreds at bargain prices–but I want a higher current yield to cover the risk. For instance these small banks still have high levels of non-interest earning deposits–for CCNE it is over $700 million. These assets are those that can move in a microsecond in a bank run. Commercial loan write downs are relatively small (so far), but with ‘higher for longer’ the risks continue to escalate on the commercial side. Anyway there is no way to predict the future, so for now I am holding on the repurchase of small bank preferreds.

Yesterday I took a tiny nibble on the RiverNorth Opportunities Fund 6% perpetual (RIV-A) at $23.00/share. The current yield of 6.52% is lucrative for a A1 Moodys rated CEF preferred. I was overweight this security and obviously am now more overweight and will not buy more of this one. I continue to look!!

7 thoughts on “Jay Powell Tosses Cold Water on Rate Cut Talk”

  1. One of his writers claims he’s very partisan and wants his legacy to he that he stopped the other guy.

    I’d say his legacy in 1 word

    OH and his dot plots make Jean cluade Basquiat paintings look neat and organized

  2. I rounded my WAFDP shares to a round number today. You need to take some risk to get QDI of 8%ish now days. But like another poster mentioned this is such a tiny amount percentage wise of the overall portfolio it is like a fly sitting on an elephant. It just helps boost yield over time as I add slowly to a higher risk bucket. At the same time I added more, money wise, to CNPWM. I sometimes get lazy and just scan for something IG and buy when the ask looks reasonable.

  3. Huge overreaction in the FI markets. Many bonds / preferreds have lost 1-2 years of interest payments with these principal declines in less than a week. Cuts are still forecasted by the Fed so great buying opportunity in my opinion.

  4. I limit the regional and small banks to 10% of my fully invested amount in any preferred or baby bonds. Why? Because a bank run can happen at any time as we have seen. Even then, I prefer those that have a investment grade credit rating like CFG, FITB, or RF. I know the credit rating means nothing in a bank run.

  5. Generally non-interest-bearing deposits are going to be the most sticky assets of a bank–they represent holdings in non-interest (typically free) checking accounts where workers and businesses conduct a lot of transactions. Those balances are more likely to slowly erode if interest rates stay high but probably not down by $700M in a day and unlikely to get to zero.

    1. yes, PNC is my regular bank. I keep minimal in savings there because of 0.01% interest. With the ease of funds transfer these days, I have access to interest-bearing funds in case of any emergency within a day or two.

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