Yesterday we had the producer price index (PPI) released and it came in hotter than expected – in large part because of energy costs. Today we have the consumer price index (CPI) and forecasters are indicating 3.6% increase year over year. At the moment the 10 year treasury is trading at a yield of 4.57%–obviously traders aren’t expecting major surprises. Certainly any surprises in the CPI of more than .1%, either way, could send yields shooting higher (or maybe lower).
It was funny, at least to me, that most of the Fed officials are now talking dovish–and a hot PPI is announced–with CPI today if we see a hotter number this dovish tone may prove to be unwarranted – or at least way too early.
I see it is an important day for those drawing their Social Security – today the annual cost of living increase is announced. I see the ‘talk’ is for a 3.2-3.4% increase. Of course part of the increase will get chewed up by medicare increases in cost (which I have seen yet). All in all we will see a monthly increase that will buy a nice steak dinner.
I have been nibbling this week – I want to write more about it and hope to today or tomorrow. My thesis is fairly simple–with interest rates near a peak, quality issues have substantial capital gain upside. A capital gain of 10% and interest/dividends of 7% gets me to 17%. The fly in the ointment, of course, is that maybe interest rates continue higher–this is why we nibble versus going ‘all in’. My assumption is simply for interest rates to hold flat–I am not counting on rates falling–this is a ‘bonus’ possibility.
So let’s get the day underway and see what kind of roller coaster ride we get.