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Jobs Report Puts Fed in the Corner

So we have hot inflation with the Fed tapering (and threatening a higher level of taper) and then we have a jobs report today that was extremely soft. 210,000 new jobs?? It is crazy, but I seldom believe these reports anyway–but folks act on them so we all need to pay attention.

Powell turns from a dove to a hawk in an instant and now is faced with a quandary. Is the huffing and puffing from the Fed chair now going to turn into whimpering with this jobs report? Another flip-flop coming?

The equity markets can’t seem to figure it all out–the S&P500 is off 1% at this moment. The 10 year treasury is tumbling again–down almost 8 basis points to 1.37%. The 2 year yield is off just 2 basis points.

I guess we will see in a few days where we go from here—memories are very short with traders and we will be on to the next ‘event’ soon.

44 thoughts on “Jobs Report Puts Fed in the Corner”

  1. Many people on this site have done very well the last few years by trading for a $0.25-$0.50 profit at a time. I respect their ability to do so. However, I think that strategy is very dangerous in our current market situation. Although it’s not likely, it’s possible that credit spreads could widen dramatically, and widen well beyond the spreads the market has experienced in the last few trading days.

    We all tend to have selective memories. Particularly remembering that after the huge drop in March, 2020, the markets galloped straight upwards. The next time, who knows, the initial plunge might remain static for a long time or even get worse. It makes me nervous.

    I’ve been selling preferred stocks with no maturity date and moving into baby bonds with maturities in the 5-10 year range. Also, buying reset and
    f /f issues with decent terms. I’ll take less yield for safety’s sake. The U.S. has kicked the can down the road for many years now. Maybe it can continue to do so for another 20 years. Don’t know, but it definitely makes me nervous.

    1. “I’ve been selling preferred stocks with no maturity date and moving into baby bonds with maturities in the 5-10 year range.”

      Same thing here Randy, except my upper limit on maturity is 5 years (2026).

  2. The unemployment rate fell to 4.2% as the Labor Participation Rate has failed to recover. Jobs cannot be created if there is nobody to hire.

    At this time, I think the best risk adjusted investment might just be a 3 year guaranteed annuity paying 1.80% issued by New York Life rated A++.

    1. AF…I’m curious…of course its not really apples to apples to compare a 3 year 1.8% annuity to a callable 10 year 1.8% secondary market CD but….I’ve been curious about the key word “guaranteed”. Is only a guaranteed fixed rate or is there some State FDIC like insurance backing the principle as well?

      1. Only the rate is guaranteed — that is why I look at products from A++ rated insurance companies. I would only consider New York Life, Mass Mutual, and Northwestern Mutual. If those insurers cannot meet their obligations to policyholders, heaven help us all. And, it’s not like I’m buying life insurance for a young child — it’s just three years.

  3. Powell has switched from eating bird seed in the morning for breakfast to roadkill….sounds Hawkish to me. Unless I actually occupy a parallel universe, parallel to all of mass media monotony, it strikes me that the level of real interest rates has little to nothing to do with GDP growth, Capex or employment levels.
    Both Japan and Europe have had negative interest interest rates for over five years (feels like a lifetime) and what a brilliant success in accomplishing nothing that has been.
    My prediction is that the Fed will never raise interest rates. That the Department of Phoney Suicide Letters, Excuses For Lost Wars and the Annihilation of the Middle Class is already working on the next ten excuses not to ever raise rates.

  4. Good comments. Value stocks getting crushed, high growth – high value – no profit momentum stocks getting crushed. Major stock indexes down a little but being supported by mega cap tech (GOOG, AMZN, AAPL) which are hanging in there. Indexes are down but not dramatically, but underneath there are a huge number of stocks doing very poorly. Feels like a change is underfoot. The Fed admitting that inflation is not transitory seems like a major change in the environment. If you believe the Fed has supported the market for the last 10 + years, and especially since COVID, but they are now tapering….what does that mean? Also, given inflation, there is no political appetite for additional fiscal stimulus, since everybody is now starting to understand that this is inflationary (e.g. giving the relatively poor 80% more money to blow drives inflation when the supply of goods is limited). The government and Fed seem to be in a box. There is a need to reduce the fiscal and monetary stimulus to combat inflation, which eliminates the support in the market. Last few times Fed tried to end QE did not work out well. Overall, it feels to me like there is a big risk-off situation about to take hold. Its about time for a significant correction. Equities are very choppy, high yield spreads have blown up, preferreds are starting to move (in a bad way). I’ve been reducing risk….. can also get back in if the environment stabilizes. Who knows? Just feels like many indicators are now suddenly pointing in the wrong direction.

    1. JD I agree with your comment “overall, it feels like there is a big risk-off situation about to take hold.” The last month has been very choppy and overall down. Headwinds are heightened big-time imho – covid surge leading to tumbling consumer demand with or without lockdowns, cold war with Russia getting hot and the Fed turning off the money spigot. I got caught flatfooted March 2020 with a bunch of mriets. This won’t happen again. I started de-risking last week. I’ve jettisioned 3/4’s of high yield cef’s and preferreds. I’ve fully replaced these with illiquid ute preferreds, Gabelli cef preferreds, past-call par pegged and a few other conservative issues. Bought an overweight position in ECF-A @ 50.17 (goes ex shortly) and BSA at par which may be called soon. I have 3 “defensive” common stocks that I will continue to hold – T, VZ and BTI. I have a very low cost in these and will add to if they go down. The day the DOW went down 900 points last week VZ went up. In addition, I have 500 shares of DOG. I’d much rather miss out on some income than risk a big loss until I feel things look better. I want to be the guy nibbling at bargains when the market is off 20% and not the guy hiding under the table.

  5. Seems like the recent pattern is sideways grinding down with lower highs and lower lows. I have been using any upturns to sell. I sold ATLCL @25.50 today as I bought under par. It’s a good credit buy there was dinner on the table and well you know…

    I also sold JHI for a nice gain as well as OVM (an ETF) for a small gain. I use the CEF’s like JHI as short term rentals only. Once they move up, I dump them. I have bought several of them back…rinse and repeat. Dumped the rest of CPTLA at a nice gain after the interest payment. Partial calls are really annoying IMHO.

    I started adding floaters about three months ago. I also started buying duration and higher coupons 6.50 or higher. Constantly trying to de-risk. First time all year I am at almost 100% (approx 95% invested). Trying to finish the year with a bang. High and low coupon issues drifting lower as others have said.

    The ugly, still getting hammered on the PM’s. Yellen was reported to have estimated the BBB plan to be 150-300T. Also reported USA spends .5T a month. Ay caramba, I am not going down with the ‘flations so I have overweight this sector for now.

    SQFT, PSECA, MHD, MQY, KHYB, YCBD (I know it sucks and just put small amount). I think SQFT will be fine in the short term and they may make even more money in a possible RE decline. PSEC should do better as spreads widen like most other financials. MHD, MHY are muni CEFS with duration. I think yields will calm down and rich people always love saving taxes especially when they get the bill for BBB. Muni market isn’t a machine like the US Treasury IMHO so supply limited. KHYB needs to find a bottom, so nibbling on the way down still small a amount invested here.

    The LTS…..LTSA, LTSL, LTSH are still in SEC safety land of death. As long as they pay, don’t care.

    I was in a “flip” of Tsakos two divvy’s ago. I’m out of the fixed one which is the strongest of the three (IMHO). The others have been trading weaker than a squeaker. This flip is turning into Gilligan’s Island, but I’m thinking there may still be some Ouzo and Gyros left in the old Tsakos or it could be the SS Titanic! Not a lot of money in this one any more after first sale.

    Now I see why Grid said, “Beware the shippers of the seven seas”. Okay, he didn’t say that but you get the point.

    1. NW, Ya gotta keep a close eye on them shippers! Dry Baltic has been bouncing back last week. SB preferreds maybe off 20-25 cents from their recent normal perch considering they are so far away from exD still. Im not overloaded in them or GSL-B, but not dumping yet either.
      Floaters can be a good idea, but one just needs to accept they are equities and will get dumped too in market turmoil. Credit spreads are widening as US long end drops, so that hurts. My NSS is a live floater but it has sagged recently. MLP arena has been dropping past several months also, so the sector has been weak.
      I have a lot of “whatevers” and letting them play out. Some by desire such as the IPL preferreds (not IPWLK) and few others that have regulatory actions. Others because I have no option because they arent tradeable anymore, ha.

      1. Bought some SB-‘s at 25.02 after selling some last week at 25.32. Don’t know if I made 30 cents or jumped onto a sinking ship. So I flipped some at 25.16. Trading them has worked so well I don’t want to stop.

        1. You did better than me Martin. I bought some SB-D at $25.02 and flipped out of SB-C at 25.16 to do what. And with that small lot I sold it was at a 10 cent loss. The ol sell something for a loss to buy something that lost more play. Since Im keeping them I will just keep grinding up and down until I want out of sector. But now I have some D’s and C’s to fiddle with.
          The STAR preferreds have been fun plays lately. I bought D series maybe a week before exD in 25.60s and they went higher after exD and I dumped around $26 a few days ago to buy I which went down into teens like it should have. Then I flipped them for a dime to buy higher yielding G series lower than I sold I at. This grinding aint making me rich, but it keeps my head above water instead of just grinding lower. Keep fightin’ Martin!

          1. Grinding…that’s what it is. Some people may even call it work, because it is. Once the rates started coming down and the calls came in my “set and forget” strategy went away.

            Started grinding and found that the money was 2x the set and forget. Felt like crap for about a month so no grinding. Still managed to get some trades in a setup for December though.

            I also added to my existing SBBA position. I wanted to play the SB’s but spidey sense says Tsakos and Scorpios is ’nuff for now. Also previously held GSLD when it was left for dead last year, but sold already.

            There are A Lot of last minute flips before 12.31.21. I don’t really want to give them all away, but SBBA I have flipped before. They are easy to find BTW no secret sauce at all just grinding.

          2. grid, You’re the pessimist who thinks he lost 10 cents, I’m the optimist who says you made 14 cents. Make nickels trading between them no matter where the underlying price goes. Those grinding profits are in addition to the 8% dividend, makes it more enjoyable to remind myself.
            STAR isn’t on my radar there’s only so much I can follow without getting overwhelmed. Maybe I’ll add it to replace something I drop. Kinda like the DOW 30 entries.

            1. NWGG, it’s work if it’s the only thing you trade. I’m watching 50 other things so it’s no bother to make a little trade while I’m in there. I compare it to buying a stick of gu at the checkout. Store doesn’t make overhead on gum sales alone, it’s an add-on purchase.

              1. Its definitely fun for me. Keeps me occupied until weekend when I focus on my NE Patriots big season win total bet over 9. At 8-4 and a 6 week win streak Im feeling better that is gonna get cashed.

              2. MG,

                It is not really a matter of pressing keys, more of a strict discipline I adhere to. I have so many positions that I never count anymore. Once I buy something, I spend most of my time managing risk. I often leave money on the table because it doesn’t play to my strength or rules. Good for others to make a buck though, there is plenty to eat for everybody.

                Risk is monitored minute by minute during trading. I spend literally all my time investing. So gathering data, analyzing, executing, monitoring, re-positioning that is the work. I have done it professionally before and lemme tell you it is work. But to each his/her own, live and let live I say.

                I would consider myself an Oscar the Grouch type of prospector. I literally hold a silver coin in my hand with wait for it ……….a prospector on it. A prospector looks for something of value when others don’t see or don’t want to put in the work.

                I’ll trade CS, PS, BB, CEFS, ETFS, Bonds and anything else that will make a buck (even crypto). For me the key is risk management and being able to sleep at night.

                Everybody has their superpower, but I have to know my limits. I’m not building a baseball card collection it is more like a brothel. There is no love of anything only transactions for fiat.

                1. We have different superpowers. I specialize in preferred stocks so my risk management consists mainly of minimizing bankruptcy risk. Yes I like what I do, it’s like a game to me. that’s probably why I’m good at it, plus an aptitude for numbers and a sense of patterns. Not much “Work” other than reading analysts and comments. It’s my income since quitting work early, between dividends and trading profits though not enough if we had a lavish lifestyle.

                  1. Yep, I am living off a stash too. Too young to retire for at least ten years. I live a simple lifestyle. I value freedom over stuff these days.

                    I too do love Mr. Market, but I have seen the “sausage” and it aint pretty. Count me out of that.

                    Interesting that you trust analysts and peeps from the internet of things. I am VERY distrustful, and sometimes I don’t even trust myself! We had a saying in auditing, trust but verify.

                    Much respect for Martin G always something to learn from you. 🙂

                    1. Didn’t say I believe everything. It’s food for thought. REITs are so complex I wouldn’t know where to start on my own. Learn who knows their talk and who is all talk. Reader comments give me ideas too, even the dumb comments help me gauge investor sentiment which matters for short term trades.
                      Ultimately I make my coin on price movement and everything else is just learning the rules of the game. Seeing the ugly sausage can make you angry, or it can be seen as just another playing piece. Like a Yeti up there taking swipes at you.

                    2. Same here Martin. If Im flipping amongst series of same company, Im committed to it anyways. Just goosing…And with my illiquids the financials are irrelevant with 100 plus times coverage ratios. It just becomes a sentiment and price movement issue.

                2. NW, Risk management is always a prudent part of decision making process. It is definitely worthy of ones time over the fools folly of predicting interest rates.
                  As the drum beat of worries over interest rates has been in forefront, almost unnoticed is the true fact that 30 year bond is now sitting right around yearly lows in yield. Down over 30 bps in less than 2 weeks. The 4 decade downward progression in bond yields was and still is in place. Tomorrow who knows…
                  Several weeks ago I took some money off table and also put almost 20k in Ibonds this year and squared off the 10k already for January’s deposit.
                  Crypto has certainly provided opportunities for trading. Thankfully I havent as my fake mental purchases I have thought about would not have been profitable, ha!

                  1. Martin, NWGG, Grid:

                    As a former REIT portfolio manager, I can tell you that property REITs are fairly simple to understand. Buying preferreds that are backed up by hard assets like real estate is one of my favorite ways to find income. Mortgage REITs are a whole different matter (although I do own some AGNC and NLY preferreds but not the common). Grid mentions the STAR preferreds – I have owned them for a decade+.

                    I too utilize my dividend and interest income to pay the bills, but find myself at 20%+ cash today (largest cash allocation since I started on my own back in 2009) after countless redemptions with another slug coming in soon on a JMPNZ redemption. Every trading day consists of me monitoring my income portfolio, while trying to find favorable ideas and put money to work.

                    I have also been very slowly entering small hedges (via long-term put options) to potentially garner large gains on falling prices for junk bond ETFs like HYG and JNK. Normally I just use a larger cash position as a “soft hedge”, but this environment of raging inflation with the Fed accelerating tapering certainly feels different.

                    Do any of you ever try and hedge your income portfolio (beyond raising cash) and if so has it worked in the past? I have followed this website for years and have noticed that hedging income portfolios via puts or short sales is rarely mentioned. Thanks!

                    1. Hedging isn’t pat of my game. I’m a somewhat conservative investor shying away from wild investments so I don’t feel the need to hedge for Insurance. I consider hedging for profit a losing investment unless you’re really good at timing the market, and if you are you don’t need it to make money.
                      I’ve experimented with trading inverse funds and though there are plenty of daily trades between them to stack nickels I didn’t keep up with the inevitable price drops. But then I never did it through a down market that’s where the profits are.
                      Owned TAIL for awhile, it’sless volatile but still a loser in the long run.

                    2. Rob, my hedge is my pension. I dont even come close to spending it monthly and I get a 5% cola raise next month. So I have no problem going to some cash. Presently I have some cash, but that is more than I ever have. I have been able to make money off downturns by using the illiquids as the source of funds since they are basically an uncorrelated asset class within a class.
                      Most reit preferreds from my experience tend to follow the trend the market is taking it. Mreits I just have never been a fan of, and have no desire to learn the unlearnable. The closest I come to hedging besides cash, and illiquids, is buying the above market yield past call issues on mini drops. For example I in past month or so bought an oversized position of BRG-D at 25.15 range. They have actually been crawling up recently in price. Having above market yield, on past call, call anchored type issues isnt certainly a perfect hedge, but it provides some cushion in downdraft protection until credit spreads widen more, or market really tanks.

                    3. Rob, as a portfolio manager were you restricted in what you had to own? Or could you be nimble and trade as you wanted? I see some of the high volume trades PFF makes driving down the price, presumably because their charter forces them to and they don’t plan ahead.

                    4. i frequently sell deap in the money leaps and then if the price declinese and I can make something north of 75% will buy them back. Normally the leaps I sell earn at least 10% of the strike price so a 10 dollar strike would have to earn l dollar in put income. I normally sell on firms I know fairly well or in some events, ones that I want to buy but at a lower price than is prevailing.
                      You need to follow things closely though. I doubt if people on this board speak about it much because unless you are into the stock, it probably is not very interesting. That said, it can be quite profitable. On occasion though things can go south so you need to be careful. sc

                    5. Rob, re “slowly entering small hedges (via long-term put options)…”, are you talking about buying or selling puts?

                    6. Bur:

                      I dabble in buying longer-term put options on junk bond ETFs like HYG and JNK.

                      Those two vehicles seem to best mirror my portfolio performance in those big, dramatic sell-offs in the income space we seem to get every few years.

                      Those puts worked tremendously well during the Spring of 2020, but then again almost anything did!

                      Buying longer-term put options on the behemoth preferred ETF PFF don’t work, as they are too illiquid (very limited open interest per contract and much too large of a bid-ask spread).

                      Want to thank everyone for their feedback!

      2. Gang,
        Speaking of keeping an eye on them shippers, I see that the Baltic Exchange Dry Index (thanks again, Grid) has lowered its forecast for where the index will be at year-end and 12 months from now. In mid-November (when the Index was at its recent lows), I seem to recall the forecast was for it to be above 3,100 for 12 months from now. Yes, between ~3,100 and 2,341 is a narrow range compared to the recent volatility, but if it’s accurate, then the index is going lower from here.

        FWIW, I added some of both SB-C and SB-D on Friday. I ate too much dry bulk goods, I suppose. I hope my portfolio doesn’t get indigestion. Looking to reduce, but those 25.02-25.08 prices seemed too tasty.

        1. SB-C and SB-D remain as my single largest holdings as a company. As long as the two Greek brother (20+%) owners run the Company, I feel confident that they can smooth sail going forward UNLESS: Trade war against China should resurface (they managed to end up with very small SEC loss per share) OR climate change destroying Athens or unexpected voyage sailing. These two brothers use their private company money to buy custom made large scale fuel efficient mostly already equipped with environmental control meeting the US Coast guard standards compliant with the European environment regulations (not clear whether it is in force). In contrast Tsako Navigation, which I own smaller of their preferreds had a bad quarter due to higher fuel cost. COO and Name Sake Founder, told the analysts in earnings call transcript that net loss was mainly due to fuel cost and had several ships dry docked for scrubber installation.. I will continue to hold Tsako preferreds. Dividend is NOT suspended. I believe they can pull it through with their decades of shipping experience. Funny thing is: Tsako COO founder used to brag “I offer the customers best price. They will just pay for the fuel and/or scrubber installation.” The joker in the deck was clearly higher fuel cost. BTW, I though I should buy just a few Tsako preffered to average down the cost. Fidelity prohibits buy such preferreds. I should thank Fidelity. I was stupid to buy now suspended ALIN -G, the old TK offshore energy taken over by Brookfield. GREED kills for sure. Despite SA articles, I will NOT buy more of the likes MAC (Mall) or SBRA or OHI (skilled nursing) . Even Brad Thomas DEA (went in and out several times, making or losing a few dollars) does not convince me that it is good. These guys need to sell their subscriptions. . DEA is not risky per se but owning buildings leasing to government e.g. their new acquisition is a Postal Service. They need money by selling more commons to raise the money. It has pro forma dividend close to 5% vs WPC.

      3. Hi Grid, just curious why not IPWLK? I’ve been holding for a couple of years, disregard price moves, got in under 101 and just collect the distributions.

        1. I put a big link in here this week from Indiana commission granting IPL the authority to redeem all the preferreds via debt or reissues. They did this last month. IPL specifically asked two different ways so they want to redeem. Its just when not if. It wont be this cycle. I dumped all mine around $106 a month or so ago. Wont reenter unless its near par. It has been a multi trade per quarter issue many years for me, so its sad to see this one on a short rope. I went to other side of fence and bought the others and hope to realize cap gains on a redemption down the road.
          Here is the document that serves as the eventual death notice .

  6. There have been seven consecutive months now of positive, prior-month jobs-number revisions.

  7. The market is forward looking, Except when we get suspect data about what happened last month. If there’s anything significnt in these reports it’s already been frontrun. When the retail investors move the market based on these reports I’m more likely to play the other side.

  8. I have taken the opportunity to basically unload all preferred shares that have a yield of 4.25% or lower QDI and 4.5% or lower when not (REIT preferred mostly) where it made sense with the ability to sell with visibility (meaning expert market holdings excluded) over the last few weeks. Patient asks slowly got filled depending on news. Seems the steady decline of them keeps happening even if they get a temp bump up. I am beginning to wonder if I should knock that up a .25% and weed out some more while a profit is still possible.

    Problem is cash pile is growing and a goal of > 4.9% QDI is quite difficult to attain today without breaking risk rules of concentration and not having a portfolio of junk. I guess some patience is in order. 20K can go to I-Bonds in less then 30 days but that barely helps figuring out what to do with the rest. Might just have to sit and do nothing for 30-60 days, get ready for tax time due to 2021 sales of common shares that had a good profit, and put in low ball GTC bids that fit my goals.

      1. Already own a nice chunk of each. Not a fan when they go above 1400. So once they dip below that I will consider adding again. Seems like they are slowly weakening bid wise and may have peaked for now. Good idea though! Appreciate it.

    1. Higher yield preferreds are falling too. Gotta figure out if they are just falling with the tide or is something fundamentally weaker. At least the low yielders have an excuse.

    2. In the same boat here.
      I have a shopping list of 4% issues that I want to jump on if they drop due to increased rates. Basically to build an annuity.

      In the mean time our IPLDP and PBC issues get called this month.
      I’m rolling the money over into PSEC-A issue. And taking a smaller position in ECCC issue.

      1. Oh, did I miss an IPLDP call announcement? Darn. Well, no capital loss for me, just the same issue everyone else has of where to put the proceeds.

    3. If you’re looking for a place to put some idle cash, AXS-E might be worth a look. Past call, so not much upside. No loss if call is announced tomorrow. QDI yield 5%+ at present price, IG. As always DYODD.

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