The super strong employment numbers today with 339,000 new jobs versus a forecast of 190,000 are certainly being well received by equities–the S&P500 is up 1.25%. The unemployment rate shot up to 3.7% versus 3.4% last month.
Interest rates have bounced a bit to the 3.67% area–just fine all things considered.
The economic reports overall continue to be mixed and as we look at the FOMC meeting on June 13-14 it seems like we have a ‘coin toss’ situation–the talking heads seem to be fairly certain of a pause–I thought a pause, but this employment number is not helpful so I guess we will see what further data bring us–CPI will be released on June 13–the 1st day of the FOMC meeting.
How about those smaller banking issues? I was reviewing my holdings and most issues are up $1 to $3 since my purchases. Of course I wish I had full positions–but I will take the gains regardless. There remains plenty of high yielding issues out there to buy–but I am not going ‘all in’ I am too conservative to go crazy–but will continue to nibble, nibble, nibble.
So, employment numbers were very strong and the market liked it? I’m fairly certain when this same thing occurred over the last two years that the market dropped for fear the FED would keep raising rates. Tempted to sell a little here but ill probably just stay the course.
The S&P smashed some key moving averages, moving convincely above the 200 day. MA. On big volume. Technicians are forced to cover shorts and join in. What do they buy? Same nifty 50 that are making new highs.
ALL of wall street pundits are still preaching negativity. At levels rarely heard. I keep waiting for some of them to he canned, and shown the door. But I guess there’s safety in the heard. In their defense they can say Everyone agrees
Not unlike economists in unison saying Transitory inflation.
. Fed increases inevitable.
Index’s were up on Friday but the average volume was down on a lot of my holdings. Expect with Monday a return to normal. Wait for any unexpected news tomorrow. If none, my prediction is for a move higher at open. But then that’s just my uneducated guess. ( and no, I am not looking at futures on Bloomberg or overseas markets)
My opinion is the market moves more on the news and emotions then technical’s. You have to ignore the noise and stick to a plan if its a sound one.
Overall Tim and others are looking and researching solid stocks and picking a good entry point. Most bank stocks are hard to judge right now. You can look for a very conservative bank and try to lock in a reasonable rate of return or move out on the risk scale for a greater return on income or look for both a income and growth of investment if the stock price recovers.
The conservative play right now may get you 5 to 6% income but not much growth. The risk these type of stocks or bb have is they may only trade a few hundred shares a day and have unexpected price moves, so you need to be happy with the income and holding long term.
I’m at the beginning of retirement and playing a mix of both as we need the income. As we move farther along and I get a feel for the economy and interest rates I plan on leaning heavier to conservative even if it means less income as I will also be less interested in actively managing.
Currently one IRA is estimated to provide about 68,000 in income but this is constantly changing as holdings get called, sold or added to.
Ravi – you might also consider long duration muni bonds. Picked up a state level (SC, my home state) 30 year at 5%. AAA rated. Yes, very long duration, but not planning to sell, retiring soon and looking for long term reliable income. The after tax yield vs. CD’s, etc works for me. Biggest practical risk, is prolonged inflation. Cheers…
do you have a customer number for at bond. i am also in south carolina so might want to consider this
83712D2W5
Initial offering (at par) was this past Friday (I’m on Fidelity), so I assume you’ll need to buy on secondary market.
Bank preferreds have been on a tear. The dedicated one share each portfolio is up 6.2% since the 5/22 start. PFF is only up 2.3% in the same period. Both results are price only as there have been ex-dividends that have not paid out yet.
PACWP is leading the way up 38%.
Only actionable if you think the bank preferred selloff was/is overdone. If so they have a lot more upside. If not, some of them including PACWP are likely headed to zero. . .
We only hold one share each of these in one account and are agnostic on future results.
Tex, It has been the rally of the regionals. That is why PFF didnt participate as much as it has considerably more in the big banks and their putridly low yields. I was trading a couple regionals this week and was patting myself on the back for a lot of tough steak dinner profit trades. But in reality one could have picked regional names out of a hat and they would have preformed just as well. As they almost all were up strongly past 5 days and yet down hugely past 3 months. As most sub groupings tend to do, they pretty much trade in sympathy.
Is there any other risk we need to consider before investing in bank CDs that are FDIC insured ?
KERNDT BROS SVGS BK LANSING IO CD 5.00000% 06/14/2038
If the banks CD’s are FDIC insured the risks are that interest rates will spike much higher (interest rate risk) and if you invest more then the FDIC insurance limits and the bank files for bankruptcy or the FDIC closes the bank…
Ravi, If you are looking at a 2038 CD, you are risking duration risk. Meaning if yields rise and you need to sell it prior to maturity, you could get pummeled selling it. Typically these long duration CDs are callable, which means tails I win, heads you lose. In another words you pick up the duration risk of owning. Because if yields drop, they will redeem it. And if yields rise they will leave it outstanding.
ok, got it . So there is rate risk on the downside .. but not upside since the CD is callable anytime.
I would much rather stick to long-duration investment grade corp bonds then since (1) most of them are not callable before maturity (2) the interest rate premium is quite attractive for the credit risk (3) i expect long treasury rates will go down in near future
I’d never buy a callable, at any time, 15 year CD. No upside. And not only are you committed to 15 when they aren’t…. If the institution folds you lose to 5 too.
One key positive is the death put. It’s one of the very few investments that give your estate your principal back with a death certificste
Hello If You Prefer,
Interested in your comment re callable issues as I have been pondering the following 2 5 year issues:
FHLB 3.75% of 6/9/2028 priced at 99.265 YTM 3.911% Non Callable
Cusip 3130AVVX7
FHLB 5.0% of 5/22/2028 priced at 99.75 YTM/YTW 5.057% Callable
Cusip 3130AW5C0 first call date 5/22/2024
Is 115 bps YTM worth the call risk?
The way I have been thinking about it is that if the YTW is higher than the comparable treasury at the first call date (in this case the 1 year bill) *and* the YTM is higher than the YTM for all maturities on the treasury YC between 1 year and 5 years, then it is a better to buy the callable.
The first leg of the criterion is not met, but the second clearly is.
By this logic the callable issue is 17 bps away from being a fair purchase.
Note I do realize that FHLB notes are likely to get called, but it is possible that they wont be.
Do you have any thoughts on this?
ravi–I own some from some relatively small banks–in just $5,000 or $10,000 increments and don’t worry about them as long as they are FDIC insured–I hold CDs from maybe 10 different banking company’s. Mine are all of 3 month to 1 5 year duration–I wouldn’t recommend 2038–that is a lot of interest rate risk and at this duration you can safely do better.
A lot of the longer CDs that I see offered are payable at maturity. Longer than 1 year CDs that are payable at maturity bring you into the murky area of (taxable) phantom income on accrued but unpaid interest income.
As I read the tax rules, if you buy a $100,000 long-dated 5% CD this year, even if during 2024 your CD pays you no cash money, it accrues $5,000 in interest which is taxable in 2024. An issue only in taxable accounts. (Anybody have any experience with this?)
FWIW – So when I ventured out into 12 months plus CD maturities this week, I looked for monthly payers, because I wanted to match up income and liabilities more closely, even if the mo-pays have a slightly lower coupon rate.
Just my opinion. DYODD.
Yes 12 month or less CDs that don’t credit interest sooner are taxable at maturity. Longer term CDs are taxed on accrued interest annually regardless.
https://www.irs.gov/publications/p550#en_US_2022_publink10009973
https://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/articles/2017-03-03/4-tax-considerations-for-cd-investors
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Certificates of deposit and other deferred interest accounts. If you buy a certificate of deposit or open a deferred interest account, interest may be paid at fixed intervals of 1 year or less during the term of the account. You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. If interest is deferred for more than 1 year, see Original Issue Discount (OID), later.
If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID.
Ravi
Principal issue after rate and maturity is Call dates.
If you expect rates to fall in the future, then you have to expect a Call on the first date and have a shorter maturity than planned.
If rates rise, then you are locked into a below-market rate for the term of the CD.
Looking at Fidelity’s listings, there is a strong mix of pluses and minuses in each category.
Other than the above – no, other than worrying about collapse of the government breaking FDIC’s guarantee, whatever happens to the issuing bank is not as issue.
yes; tieing up funds in a CD means you dont have the funds to buy something ; also yield on Broker Money Market funds are almost as high (Schwab 4.91%) its a pittance of a difference from your CD rate; if you go with the CD ; keep it short 3 Mo ; max 6 month;
Ted, I personally think it’s good to have money in CDs where I can’t buy anything with it, ha. It depends on ones strategy. For me I am barbelling. A lot of noncallable CDs in 5% range ranging from less than a year to almost 5 years. I also throw my IBonds in here too. Then I have the plus 6% non callable ute bonds that mature in 5 to 12 years. Then on other side with the “preferreds”, I’m a bit more aggressive averaging over 8% on this side. For me, I don’t find any 5%-6% preffereds alluring with plus 5% CDs available. As I could find quality 5%-6% preferreds even during zero rate environment.
Grid i’m looking for high quality Preferreds yielding 8% or over ; take a look at JXNpA and LNCpD ( but under 25) i also got a preferred from US Bancorp yielding over 8% its a floater USBpA ; also a couple preferred from BDC SAR ; check them out on Quontom ;
Ted, I have had the JXN and LNC issues and rode them back up to par. For plus 8% income issues I agree with you. But for me, I am already milking the ALL-B and NSS types that already have the yield but no price upside either. So I am trying to occasionally goose returns with plus 8 types that also have cap gain trading in them. So I trade around here. As it’s like paint drying with my other stuff, so I need a little excitement, ha.
GAINL now trading at Fidelity. $24.75 currently.
Thanks Wilson
GAINL on Schwab too – both .com and streetsmartedge. Not much data (use the little “quote” box on the bottom of most pages) but you can buy it.
i see GAINL on Edge as well ; no activity shown on Friday; but I can put in an order ; I see the other two Gain Notes Gainn and Gainz are yielding around 5%; so getting GAINL under 25 would seem to be “a no brainer” if there is such a thing !
Ted – If you’re thinking about GAINN and GAINZ as “yielding around 5%,” then you’re looking at the wrong parameter… Both GAINN and GAINZ have COUPONS of around 5% with N @ 5% and Z at 4.875% but they are both trading at substantial discounts which is Mr. Market’s way of equating them with an 8% coupon issue….. For example GAINN trades at 23.50. With its 2/1/26 maturity and its already accrued interest that you’re entitled to, a purchase at 23.50 provides a 7.73% yield to maturity. GAINZ, due 11/1/28 at its last of 22.20 provides a 7.52% yield to maturity… Both could be considered a bit too high v GAINL OR Mr. Market is favoring them for their increased upside potential vs GAINL due to trading at larger discounts to par…. I own GAINN.