So now we are at the last trading day pre-Christmas. Lots of folks are already off drinking hot toddys or fighting the crowds in the airports looking to travel. The rest of us are waiting for the release of the personal consumption expenditure (PCE) numbers – in particular the inflation portion of the report. Even though many investors are focused on things other than stocks and bonds this number could move markets fairly sharply–or markets could yawn and interest rates could continue right where they have been most of the week.
The 10 year treasury is at 3.86% this morning – an hour before the PCE release-a tight range this week, but slowly drifting lower. The PCE inflation component (core) is expected to be slightly lower month over month and year over year. Obviously meeting expectations would be ideal. Numbers above or below expectations could move markets kind of sharply and will shove interest rates (the 10 year treasury) up or down. We’ll see in 45 minutes (7:30 a.m. central).
Portfolios moved ever so slightly higher yesterday–I mean so slightly. I love capital gains, but would be quite satisfied with flat share prices as long as the dividends and interest payments keep flowing.
I still have some dry powder in the account–from CD maturities and the Hennessy Advisors 4.875% baby bond sale (HNNAZ) (which was a large position) so continue to look for buys – but today I doubt anything will happen – I’m just not ‘feeling it’.
I did my 1 hour of Christmas shopping yesterday-so no shopping left to do. My wife is going shopping this morning–we don’t buy gifts for each other or for any of our kids (youngest is 33 and oldest is 47). What do you buy for ‘kids’ that have spouses and 2 great jobs in their families? Nothing at all. We have 8 grand kids – needless to say that is where the money gets spent–this is the time of year that I get my ‘eyes opened’. I had no idea that a NFL jersey was now $125–somebody is making some sweet cash of that deal.
Well-enough. Let’s get the day going–waiting for Rick Santelli and the PCE–then the boob tube can go off.
Tex – thanks for the statistics. I knew my performance beat the market in the past two years as I’m up 15.7%, but it makes me feel real good to realize how much better I’ve done than the average for the playground I’m invested in.
Wishing all happy holidays and a happy new year.
I did my math for the 2 years ending 12/21 to 12/23 and
While I was up double digits in 2023, for the 2 years, I’m barely up +2-4% .
What I never disclosed on III was that I coughed up a loss of 20% due to Covid. That’s how deep it gutted me. But here I am, still holding up convenience stores (by writing a check😄 , remember them?)
👁👁👁 members probably had better results than non III members.
I am Newman
Happy holidays to you Newman. Your performance isn’t terrible by any means. Tex posted data showing where you would be if you were a buy and hold forever person with preferreds and baby bonds–his info pretty much mirrors what my data shows–you would be way down.
MFICL finally started trading (at Schwab) got a position ave cost 25.14
If this trades like several other recent BDC Notes at 8% coupon , it will trade higher once the public is on to it. this is the only thing I found to buy this last trading day before Xmas,
Let’s see…my health insurance premiums are going up 13% in January, my gym membership just increased their rates 17%, and each of the water, gas, and electric utilities in my area are all increasing their rates 5-10% for 2024.
This 2% inflation is horse manure.
Bloomberg had an interesting piece today on the “Silent Recession” that is Crushing the Middle Class:
https://www.bloomberg.com/news/articles/2023-12-22/credit-card-debt-surge-holiday-revenge-spending-drives-higher-balances
“At the same time, an estimated 40% of Americans have drained their pandemic savings to afford ballooning bills. And videos on TikTok are detailing a so-called “silent recession” as millions struggle to keep up with student loan bills, car payments, higher housing costs and elevated grocery bills. That has experts worried that many consumers are increasingly relying on credit cards, and other debt, to cover everyday expenses.
“Consumers have leaned on their available lines of credit for necessities — things we expect consumers to be able to pay with the cash they have on hand,” said Bruce McClary, a spokesperson for the National Foundation for Credit Counseling. “But they’re running out of room.”
“One specific area of concern is the increasing popularity of “buy now, pay later” services, which typically allow consumers to pay for purchases in four installments, often with no fee unless a payment is missed. The debt is not reported to credit bureaus, meaning no one knows for sure how much is out there.
Adobe Analytics reported consumers using $67 billion worth of the installment loans this year through Cyber Monday, a 16% increase compared with 2022. Wells Fargo, meanwhile, estimated consumers spent about $46 billion using the products this year.
Delinquency rates for credit cards are just slightly above pre-pandemic levels. But economists warn the outlook on consumer debt is starting to darken. Some banks are reducing credit limits and closing unused lines of credit, an indication that consumer debt won’t play the “locomotive role” it did in driving spending in 2024, according to Tim Quinlan, a senior economist at Wells Fargo.
“It’s not only credit cards where consumers are building up debt, there’s student loans, auto loans. If you look at how much interest costs are eating away paychecks, it’s as big as it’s been since 2008,” said Quinlan. “That’s the worrying measure.”
“Let’s see…my health insurance premiums are going up 13% in January, my gym membership just increased their rates 17%, and each of the water, gas, and electric utilities in my area are all increasing their rates 5-10% for 2024.
This 2% inflation is horse manure.”
EXACTLY !!!
Not sure there is any rational person who believes the manipulated low inflation numbers. People live in the real world and see the real prices. Most are not fooled
Thankfully I just keep on locking in more to my dividend income stream for the long term.
Kid and Mav, those were my real noticeable spikes this year. Not really much else but they stuck out like sore thumbs this year. Fortunately Im shielded from health insurance costs as my GFs company picks up the entire tab there for me.
As far as the covid money, yes mine is already spent too…Oh wait how can you spend any covid money if the government didnt give me one red cent! Oh well, I have survived just fine without it anyways.
I hear you Grid.
For me, it wasn’t the health insurance premiums as somehow I am still craftily managing my taxable income in a way so Uncle Sam pays nearly all my healthcare premiums under the ACA. Getting harder to do going forward given the increase in interest and dividends. Plus my wife started Medicare 5 months ago and is itching to start her social security. I have finally convinced her she needs to wait another year at least to do so as that income will send my premiums much higher. Have to try to take advantage of one more year of Uncle Sam’s largess
On the other hand, besides the utilities mentioned, house , auto and umbrella insurance were killers in price increases this past year. I drive maybe 20% as much as when I was working but the auto insurance inflation rates are ridiculous. Finally harder to quantify but food inflation, at grocery stores but especially at restaurants has been way more the the fed wants one to believe
All that said, in the overall scheme of things it doesn’t impact me given the assets and income stream I have built. But I don’t know how some younger families are managing with this inflation- especially anyone who had tobuy a house recently
Maverick; I’ve been saying the same thing for quite a while now. Its all a great facade. If something at the grocery store goes from $1.00 to $1.20 and then eventually goes “On Sale” at $1.15 it is still way more than this Government is feeding the masses. They are masters at manipulation. The people that truly get KILLED in times like this are 2 classes. The “retiree’s” and the folks at the lower end of the pay spectrum. Retiree’s can’t even ask for a pay raise as they have no one to ask.
Chuck, I like seeing you back. I’m not in the same class as you, but I agree with the general feeling that CPI has been manipulated for decades by big brother. That’s enough time for both sides of the aisle to be complicent. I just wish there was more compromise and also seeing things from the other person’s viewpoint.
Hope you enjoy your family and friends during the holidays
“Let’s see…my health insurance premiums are going up 13% in January, my gym membership just increased their rates 17%, and each of the water, gas, and electric utilities in my area are all increasing their rates 5-10% for 2024.”
Meh, that’s all pocket change :->)
My home insurance in hurricane land went up SEVENTY percent this year. Next year might cost me a kidney!
Despite that and other increases, higher interest rates on CDs and treasuries plus a good year for preferreds resulted in an increase in my net worth. For a retired dinosaur like me, that’s a bonus so no complaint here.
Those “4 payment” guys are slick marketers. No interest, no fees, – but if you miss a payment, they gotcha.
What is also troubling is the spread of “instant payroll” plans (go by lots of different names). no more waiting for payday. They let an employee access money they would normally receive in their next paycheck on the day it is earned – so no more living paycheck to paycheck, it is living shift to shift.
One thing I find to be especially troubling is how many people can’t get their heads around “live within your means”. They get a “lifestyle” and can’t figure out how to reduce it.
Private, I hear ya. My GF felt she needed a diamond ring upgrade, so I freely obliged as she deserves it. Anyhow company offers 0% for 12 months on the $16k spent so I took them up in the offer. I know how to play these games. With this one, if I pay them $15,999. 99 at end of 12 months and am one penny short, I owe 32% interest for the entire 12 months on the entire $16k. And 32% accrues pretty fast, ha. But I dont trust those bastards so I will pay off in full after 11 months. I dont fall for those tricks, but I do take free money interest loans any chance I get.
Grid—does your girl friend need hand support wearing a $16K diamond ring? I guess I mean is it that heavy? Or does $16K not buy as much in these inflationary times? Just wondering………..
Randy, $16k isnt much in the diamond world. That was just a bit over 2 carats. I bought that one from the poor mans section on their website. Diamonds are a rip off anyways, that diamond ring isnt worth a $100 to me as a man who doesnt even own a watch. But its worth a million dollars to her as she loves it. So it was money well spent on her, even though I see no purpose in it.
So much for diamond rings……. My wife was given my mother’s diamond ring. I don’t know how big it was, but it was supposedly extraordinarily high quality, colorless and probably worth a lot. It appeared to be flawless however we knew that on its underside there was a chip of some sort that made the stone distinguishable since we knew it was there… When we lived in Montserrat, my wife wanted to have it cleaned. A Brit friend of ours took it back to England with him to get it done by a professional jeweler. When he returned with it probably 6 months or so later, we discovered the stone had been stolen out of the ring and replaced in its setting with a piece of glass. It wasn’t even close to duplicating the colorlessness and of course it did not have an underside flaw so it wasn’t in doubt to us what had happened….. There was nothing we could do… a family heirloom lost…. Fortunately, my wife was not a diamond seeker and would not have enjoyed our paying for a replacement so we just mourned its demise and moved on…. saddened more by the loss of the heirloom than the diamond itself… Yes, I know, another non investment related story…… sorry ’bout that.
I will cover our butts for you 2WR with a quick investment thought before we get back to the ring thing….If PLDGP ever drops to $50 again like it did this week, sell a kidney to buy all you can as you will be able to buy back 3 annualized return kidneys in a weeks time with the flip…
Ok, that really sucks what happened to you… I use Blue Nile and had to do the mail in upgrade. The mailing part freaks me out, but it has worked fine and they are reputable. Everything is about compromise on diamond buying. To get more carat, we had to cheat on clarity. Kept the quality on the cut and color though. Women like sparkle and clear. They cant see those tiny occlusions without a microscope anyways.
I actually got some of that PLDGP at $50. Crazy – I had a low bid in at something like $52 and the price dropped right though my pbid and I got it in the $50.x range. Not complaining – just wish I had bid for a lot more. Put another low bid in. but probably not getting $50 again any time soon.
When I was living in the middle east (working for a university) a friend’s father was in the diamond business in Belgium. he arranged for me to get a (modest) loose diamond ridiculously cheap. I used it to propose and my wife has never let me upgrade it (offered to more than once) because it is the one she got married with. (*happy dance*)
I might of told this story already. When I was younger I knew a guy who owned a local coin shop. He also dealt in other items like old watches and jewelry. When I told him I wanted to buy an diamond separate and have a ring made he offered to look for a diamond. He found one and the seller offered to send it from NY for us to inspect. Turned out it was larger than advertised and the quality was good. So I bought it. Took my girlfriend to the Jeweler to look at rings. We picked out a tri-color Black Hills gold ring. As the jeweler was examining the diamond he said out loud ” this diamond is used”
Well she still loved me and its been almost 34 yrs now.
Charles, Don’t let her see the current ticker nor special dividend on COST and you should be good. Maybe relo to an off-the-grid log cabin for a bit.
alpha, too late. She’s on a Costco employee’s group on Facebook. Current and retired employees. One just got his gold badge for 40 yrs. She still has 25 shares in a Merrill account she told me hands off. 🙂
Charles, big smile on that one. I can imagine how I would have felt.
Well………….
We are back to levels where/when pfd holders need to evaluate positions. Everything has gone green. Do we cash, or do we hold? I’m getting this SELL ALL feeling.
If you Prefer – we took knocks in 2022 and gained them all back and more in 2023–do you want to bail now? I know your ‘feelings’ – I battle them everyday.
I wish I could say that for my ‘friends’. I have a whole host of positions in the low 4’s. For a bunch of reasons I cashed summer 2021. Put the equities back on in a rifle approach…..And have sat out on 50% as cash started to return interest. I reloaded last year finally loading on core beliefs. Still 40% cash. At 5%+ I won’t go long unless its 8…or 4+%on SOFR….I don’t play in $1,000 land BTW.
Here’s a mirroring of what I’m hearing that still gives me pause…Dave Kass 10 surprises 2024
https://realmoney.thestreet.com/investing/doug-kass-my-10-surprises-of-2024-16140402
Tim said: “If you Prefer – we took knocks in 2022 and gained them all back and more in 2023–do you want to bail now?
Here is the data from the 12/31/21 close through today, 12/22/23, based on all issues that traded both on 12/31/21 and today.
All preferreds = -18.8% (549/578 = 95% are down, i.e. lost money)
High quality, aka low coupon preferreds= -29.6%
Largest preferred ETF (PFF) = -20.8%
Babys/terms= -12.3% (157/171= 91.8% are down)
Bottom line: if you are UP since 12/31/21 you have substantially outperformed the market. 94.3% of preferreds/babys/terms are underwater since then. If you held the “highest quality” issues, you are seriously underwater. Fill in the blank on when you think those will get back to breakeven, if ever.
Hey Tex, good to see you posting again. My assumption is most here did appreciably better. As many of us harped on the perils of buying 5% and under fixed perpetuals and the capital risk they presented. Plus many of the ones that helped keep people out of trouble were finally redeemed and not trading today.
Well said, Grid.
This spirit of this board is the opposite of buying and holding PFF. So yes. . We did significantly outperform PFF. We aren’t geniuses or anything.
We were buying these names during the selloff, not because we were market timers, the yield was simply too good to pass up and we could live with the consequences if rates continued to rise.
Grid – yes good to see Tex here. We do know he is correct if one held preferreds all through 2022 and 2023 even with dividends one got crushed–the weekly chart I post each Monday shows on 1/7/2022 the average preferred and baby bond was at 25.62. 2 week ago it was at 21.53. Investment grade was slightly worse. Fortunately most (not all) on III were taking profits in 2022 and were buying in early 2023 and taking advantage of CDs, treasuries etc. I will post some charts of my accounts from the brokerage websites showing how my accounts moved and I suspect mirror many others.
Tim, it just depended on what you owned, as many didnt trade like the market of then newly issued low yielding fixed perpetuals. The term dated, about to be called, live and then soon to be live floaters performed just fine to outstanding during that period. The key was just not to “fight the Fed” when they announced they were raising rates. I got a 7% return in 2022 but it could have been more as I tried a few times to find a bargain only to see it becoming a “better bargain” so I would quick sell for a loss and singed fingers. The BKEPP and CNIGP’s of the world saved my bacon then as I was way overloaded in a few of those ilks and it paid off. Sitting in cash would have only caused me to buy something at the wrong time so I stayed in those types and a few rising floaters.
Next year will be more constrained being half the stash is in noncallable 5% plus mostly out to 2027-28. Probably a bit over a third is now back in fixed perpetuals bought recently back at turn of the century pricing well under par. So I am largely on both ends of the spectrum now.
Hi Tex – good to see you. I said that without explanation and probably should have explained further–in 2022, near the interest rate hiking cycle many were taking profits and severely lightened up during all of 2022. Then in early to mid 2023 I know I was a buyer–but also had already bought quite a bunch of CDs, bonds etc. So I am talking portfolios in total – not a portfolio of pure preferreds. One can say you can’t time the market–but obviously you can make changes that take advantage of a given situation. I will post a chart of my accounts straight from the broker accounts to show how my accounts moved. Happy Holidays to you!
I thought this as well. I have positioned myself to hold for a while now with MAYBE some small periphery moves. That said, I have monthly $$$ coming available due to laddered treasuries maturing – where to allocate these funds will take more thought in this environment.
Yazz, treasuries, CD’s and other instruments have a expire by date. My wife and myself need the income thrown off by these investments in preferred and BB’s and bonds. To sell to lock in a one time profit then try to find a replacement for the income is too much work and stress. Then in the meantime you might lose some of that income or reduce it.
After 50yrs when I first started working, I see this as maybe the last cycle after 10 years of ZRIP to invest and lock in some decent yield. I can live with the ups and downs of the actual account as long as I am not buying high and selling low.
Example
My wife has only a IRA and SS
Originally a 401k first 8 months of 2022 it had lost 25% of it’s value
1/3 in COST stock and 2 growth mutual funds. Total yearly income thrown off approximately 15,000
Sept of 2022 she started withdrawals of 2,500 before taxes. Since September of this year she increased it to 3,200
After converting to a IRA the account is up 8% and about 2/3rd invested and producing an excess of about 25% more than she is taking out.
This gives us a little to reinvest.
I don’t see any reason to sell and lock in one time profit to then lose the income and try to find something to replace it with. Look at the people here posting how their CD’s are maturing and they are having trouble finding another CD to replace it with and get the same income. Those are short term investments.
I’m working on long term investments I don’t have to worry about replacing.
Good point. I am just talking pfds. To me anything guaranteed under under 2 yr till maturity is essentially a ‘cash equivalent’!
Sometimes I wonder about “Sell All Now”. However, it’s not an either-or. There is a happy medium (“sell some”), especially when it is easy to make over 5% in cash (5.4% short-term T-bill, 5.2-5.3% CD, 5.1% SNSXX, etc). Rather than taking an extreme, I’m happy “in the middle”…
Dave, for me anyways its always been easier to tilt than to time a sell out, as that could be wrong, and reentry could be wrong. I tried to stay big trend. During ZIRP it was always buy the dip and sell the rip as the Fed at 0% had your back. Then when the Fed pivot came it was dont fight the fed and own floaters, term dated, and cash equivalents. Now its inevitable the short end will recede but the long end at this stage provides no certainty.
When 10 year was hitting near 5% I got the courage to pivot and buy a bunch of fixed perpetuals that had receded to turn of the century pricing. Still picking getting one today still around that pricing. But its easier to have the courage to do this with half the stash is basically locked down in CDs with duration mostly out to 2027 and 28. So in effect I am in the middle also now, but still fully invested and not exposed much to near term duration risk.
Disappeared – It looks like bargain 1 yr CDs, callable or not, have disappeared now at both Fidelity and TDA.. The best rate I see right now is only 5.05%…
callable CDs likely to be called early if rates keep dropping.
I’m sure you are right Martin. Any idea how much of a drop will be needed to motivate a call?
Holy shxx–you are right. 2 year is 4.95% now. I have noticed that JPM issues have been sold out and now we have the oddball dogs and cats (small town banks I have never heard of) coming to market. Guess the big ones are full up with money.
I just added a 15 month 5.35%/5.50% APR CD at sychronybank.com to keep the string going a little longer. https://www.synchronybank.com/banking/cd/?UISCode=0000000
It’s worth keeping an eye on agency bonds. Yesterday I was able to get 3133EPS30, FFCB 5.94% callable 1/8/25.
2WR, Discover Bank has a 5.30% 9mo CD available via their website/I got a flyer from them in the mail today on it. Not brokered of course but decent rate.
Excellent PCE report for November.
https://www.cnbc.com/2023/12/22/pce-inflation-november-2023-.html
I have been ultra-critical of Jay Powell. It looks like his approach worked.
SteveA–for now one has to admit they are threading the needle, but it is a problem they originally created so it is likely to soon to pile on the accolades.
Many times, just like nature, they work themselves out, despite someone button mashing or using the fidget stick. For example, I have had steak twice in the last 4 months. I am simply not going to buy ribeyes at $26-$32/lb at the grocery store. I think i learned a 100 ways to cook chicken and pork. Ha.
For some lifestyle changes that I did, I am not going to give someone else credit for me doing them, especially since they created it.
Mr. C—at my advanced age, I’m just depriving myself (cutting off my nose to spite my face) if I don’t eat prime steak once a week. I gotta mix in some steak with the pasta and chicken. Fortunately, Costco is only 10 minutes way and their prices are much better than anywhere else.
Costco often often has good meat prices (we have a business costco near us that is even cheaper – but the meats are all large cuts still in the packer bags). We also use a restaurant supply store when they are cheaper.
My dad taught me to slaughter/hunt and cut meat, and a couple of my sons have picked it up too. Sure makes a big difference in meat cost, especially when we are doing big events.
We are doing a big Christmas party tomorrow with the (mostly latin immigrant) community we work with through my wife’s school. One of my sons and I spent most of yesterday evening cutting meat. We are providing 50 pounds of beef (mostly marinating for Carne Asada), 100 pounds of pork – some for carnitas and pork al pastor, but I also smoked some for the ladies to use in Posole and tamales. I have about 120 pounds of chicken in brine that we will BBQ. I got a pickup load of veg, but a bunch of ladies volunteered to prep it so I got most of my day back. A couple of guys are even going to BBQ goat (kid – cabrito).
Even looks like the weather will cooperate.
Steve, the entire world of economic experts has been ultra-critical of Jay Powell. The words of the Fed Chair in press releases and press conferences get more scrutiny than passages in Shakespeare or the Bible. I cannot think of a single expert who hasn’t advocating at least tweaking his actions. Fed Chairs are praised in history books, not in newspapers or TV.
The other part of the equation is that freshman economic students used to be taught on day one of macro that the primary government tools for dealing with inflation were fiscal and monetary policy. But in most commentary today, fiscal policy is just taken as a given. The notion that Congress could possibly react to economic conditions and take some affirmative step to reduce inflation seems so patently absurd in today’s environment that commentators don’t even consider. (I don’t want to get too political, or point fingers at any one group. But while the Fed must take fiscal policy as a given, that doesn’t mean that fiscal policy is irrelevant to inflation or that the rest of us should think of fiscal policy as some inflexible beast that just continues on its own momentum.) The Fed has limited tools. Our elected officials have other tools that are rarely used to manage inflation, and I believe commentators just take it as a given that those tools are unavailable. As a result, I believe every Chair since Greenspan has been given more blame for economic problems than they deserve.
Living on the wild side, one of my speculative common stocks was off 10% yesterday with 26% short sellers. Did a number on one account.