Markets Calm Waiting for Jay

One of the few times I turn the boob tube on during the day is on ‘Fed Day’–but not for another 1/2 hour as I don’t need the CNBC talking heads to rehash what ‘might’ happen 100 times an hour.

I expect the S&P500 to zoom higher and then lower–or zoom lower and then higher as the algorithm’s run the show for a few minutes–all pure silliness.

Today we are getting a small bounce in preferreds and baby bonds–up about 7 cents/share on average–a pause is nice–whether it will last we will know in a few hours maybe. There is nothing one can do to react to interest rate changes now–so just sit back with your seat belt tightened and enjoy the ride.

26 thoughts on “Markets Calm Waiting for Jay”

  1. I agree with the comments of Tex and Azure below.

    The Fed is hoping jawboning will do some of the work for them. Maybe so, but I believe that the Fed HAS to be committed to the anti-inflation agenda after so much rhetoric.

    The upshot for floating rate preferreds: there should be a rush to call current floaters of Investment grade or near investment grade, such as CUBI-E. Higher for longer should benefit preferreds set to float in the next two years such as MBINO.

    1. The so called “Covid reset issues” are the ones that will have the most call pressure being their spreads were so high relative to issued coupon yield. That is why I got into WTFCP and Wesco preferred several days ago when they dipped under par plus accrued. Im itching for some 5% CD action hopefully in near future like another fellow poster mentioned.

  2. Charles M – Good observation on commodities. This pull back is one of the only variables that still gives me some kind of possible hope. Over a year ago I created an alts type bucket to hold/position trim out of over time and I still have these in smaller lots left mostly with house money now; JO, UUP (overweight on this one), BOIL, OIL, SLV, WEAT, BRKY, GUSH and a few others.

    I have noticed a big disconnect between commodity pricing being so forward looking vs. where they reside now and as you allude to, it just seems as these retailers/grocery stores and the like can raise prices at will still. How long can you keep playing the supply chain card etc. The one thing that got me on high alert mode quite awhile back now was when everyone and their brother along with the so-called experts were touting 100% certainty that we were only facing transitory inflation cycle and citing the used car/rental pricing predicament etc.

    Generally when everyone says something is gotta happen, the opposite always does. Just like that supposed “bond crash” I kept hearing about for years and years. I had been using very aggressive levered income driven strategies since 2010 and all I heard every year was the great bond crash that never ever came to fruition until finally potentially now. Always listen to your own intellect and gut.

    You are making the right move in trusting your instincts by taking a pause on that flipping tactic for at least now. Not worth risk/reward presently. I will probably average up on my index equity puts depending on how tomorrow price action looks.

    1. I don’t know when it might break, but I tried my hand in a small position in CORN. As I mentioned, I wasn’t seeing much corn in my C.O.B. which led me to believe the local mill cut back as it was getting too expensive. 2 days and I was down a 1.00 so. I bailed. Now look at it, it’s back to were I jumped in. As for BOIL I thought about it, but decided to just stick with CEQP-P
      The problem with futures is they are just contracts. Real life like in my job you have to add in transportation costs both in and out, Labor, and the all important cost of NG. right now its cheaper to buy the refined and just melt it instead of buying scrap and trying to purify it. So very convoluted.
      On one hand you need the refined lead to back the contracts, but being inverse to actual cost the demand should be driving up the contract cost. The businesses reclaiming dirty lead and separating it from the scrap like the battery breakers must be close to shutting down due to transport, NG and labor costs.
      Just looked, all metals except nickel are breaking down.

  3. I am going to take the over on the Fed funds rate. Seems like everybody and their brother thinks:
    Economy softens>recession>fed starts easing sometime in 2023

    Here is what I heard Jay say today, slightly paraphrased: “Can you hear me now! We are going to drive inflation into the ground, regardless of what side effects it causes. If it worth a losing a few percent of jobs here and there, to save the vast majority from runaway inflation. I am going to remembered as Paul Volcker the 2nd, and NOT as Authur Burns the 2nd. ”

    Obviously this not the consensus opinion . . .

    1. Tex – I concur. I heard the same thing in real-time. I think some smart money did as there was a rather rapid violent turn around from DJIA near +200 that got smashed. I loaded some short term puts as that bot equity dump on the close was a good probability.

      We are in the very early innings here. I just hope we don’t see those 5-6% coupon uber high quality preferreds take a 30-40% hair cut in the next few months in same fashion as the 3-4%ers did. Just make sure to keep some cash available and I have been pounding the table that 10 month T Bills @ 4% not a terrible place to duck out for a little break either.

    2. Heard the same thing Tex. He was articulate and refreshingly unambiguous.

      Thanking Jay as four add-on buys auto-triggered at new lows while I was out again this morning imitiating a slug while pretending to run a 5-miler. All A/A1 rated issues, yields close to 6%.

      Each buy was an added tranche to existing positions. Weighted avg purchase price continues to drop, yield continues to increase.

      Looking forward to more Powell fireside chats. New buy-orders are waiting.

    3. Heard the same thing Tex. He was articulate and refreshingly unambiguous.

      Thanking Jay as four add-on buys auto-triggered at new lows while I was out again this morning imitating a slug while pretending to run a 5-miler. All A/A1 rated issues, yields close to 6%.

      Each buy was an added tranche to existing positions. Weighted avg purchase price continues to drop, yield continues to increase.

      Looking forward to more Powell fireside chats and sending him a bottle of Eagle Rare. New buy-orders are waiting.

  4. If/when the economy falls into a deep recession, the political pressure on the Fed will be enormous and I think the Fed will cave. Whichever political party loses the mid-term elections will blame the Fed. I can’t see continued raising of the Fed Funds rate beyond next spring and actually think the Fed will go back to half point raises by the end of the year, if not sooner. JM2C

  5. When the market falls take the opportunity to take some tax losses and buy good companies at on the cheap.

    I don’t see the point in complaining.

    Just bought a 6 month T-Bill at ~4%. Happy days.

    1. Porky–I now have a large tbill and note position at 3.7 to 4.05%–hiding out for a few months at a reasonable rate.

  6. Mass Media Monotony Has A Hysteria Fit: Fourteen years of zero percent interest rates and rate repression was not enough for who? I sure had enough of it. I think CNBC, The Bloomberg Dept of Welfare and ABCCBSNBCPBS should replace their current talking heads with Iowa Hogs. At least the squealing will sound more pleasant and make more sense.
    Looking forward to five more rate hikes through 2023 and the return of the 5% CD.

  7. So Powell continues to be committed to a 2% inflation rate. I don’t see how he does that with inflation 8%+. But in listening to him today, he keeps saying the inflation rate is 4.5% – 5%. There is a reason. The FED continues to be focused on Core PCE.

    Getting the Core PCE down to 2-3% is different then getting the consumer price index down from 8.5% to 2%.

    I guess it depends on the meaning of “2% inflation”. Most of us care about consumer price inflation not Core PCE.

    1. I don’t know what is more of a unicorn tale; supposed rate cuts as early as 2023 or getting to 2% inflation. Both are seemingly impossible right now. We have much more hiking to go if they are hyper focused on hitting that 2%. Initially 1 year treasury yields surged to new highs but pulling back slightly.

      1. Forgot to add, USD scorching hot right now. Breaking all-time highs here as equities most likely dump on the close.

      2. Theta, this kind of fits into my “this time its different” scenario. It seems since 2013 any “market problems” were quickly “solved” or “washed away”. Be it Taper Tantrum, 2016 failed rate rise, Dec. 2018 credit spread blow out, 2020 March covid… Right or wrong, I have been adjusting to this time is different, which means a bit longer slog and attempting to tilt accordingly….hopefully, ha.

        1. Gridbird- Finally after many years, your are right, we can utilize that phrase. I am really glad I forced myself to stop using leverage 18 or so months ago. Eventually everything comes to an end. Although as you outlined we have had many close calls and whammy events that have been avoided and quickly recovered from over the last decade.

          I read a stat on Bloomberg something to the effect that presently today now 88% of all bonds (perhaps was corps) is trading at or below par. What an astonishing turn around.

          1. All commodities are falling right now and have been for months. No one has blinked yet and I am still using the rising prices excuse to raise my prices to catch up on margin. The real inflation has been wages. Brokered trucking rates have fallen slightly but LTL rates have jumped as companies like FEDEX try to make up for losses. When my competitor starts under cutting my prices and that could be soon then I will have to play the game. The inflation that we are having with delays in products from overseas is not something I think the feds can control. If anyone looked at ELUXY and read their report of lower sales or WY you would see recession is already setting in.
            The market is not feeling right and I am glad my itchy trigger finger isn’t putting in any bids right now. Normal times preferred stocks that are 30 days out from x-dividend would be rising as people try to catch them. But look at all the AGNC preferred this past month. No way am I doing my normal buy and flip right now. I think in normal times all of us have played that game.

    2. I noticed the same thing Steve–choose the easiest target I guess. We wouldn’t eve be dealing with this now if the Fed had done there job a year or two ago when we all knew they should stop QE.

    1. Will be interesting to see the third quarter numbers when they are reported a month from now. Will we have 3 quarters in a row with negative growth? Looks very likely. Will be fun to see how the media spins it.

      1. LOL – 3 quarters in a row of negative growth?
        Right before the midterms?
        The media will spin it like this is the best thing since sliced bread.

        9% inflation is good for you !!!
        An economy in recession is good for you !!!
        Those people in charge in DC are doing a terrific job for you !!!

        1. I don’t care what the media says that’s not what I base investment decisions on. Big difference between playing politics and analyzing investments. Never invest based on emotion.

      2. Most of the world knows that two quarters of negative GDP is objectively a recession, but in the USA there is no recession until, NEBR, a private research organization in Cambridge MA says so. Got it?

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