The ‘dog days of summer’ continue this morning with the DJIA future trading in a very tight point range this morning–yawn–we love boring.
Last week most markets traded in tight ranges all week with the DJIA closing around a dozen points higher than where it opened and the 10 year treasury, while topping 3% for the first time in two months, closed the week at 2.95%. The biggest news of the week was the employment report on Friday which showed a much smaller than expected job creation number in July of 157,000 new jobs. Toys R US is blamed for laying off 32,000 workers creating the job shortfall. As we mentioned last week economic news has a life of about 2 hours and after results are quickly rationalized attentions become focused elsewhere.
This week in economic news we have a very small calendar. On Tuesday we have Consumer Credit. While normally this isn’t an important number we are interested in it because in June consumers took down massive amounts of debt–around $25 billion which was double the estimate–will the debt binge continue? On Thursday we have Producer Prices and on Friday we have Consumer Prices being released. Are various tariffs feeding through the system? The consensus estimates don’t indicate an issue here–but one should watch. Also on Friday we have the Federal Budget being released–this is turning into a disaster as economic growth is not creating the revenue stream that was given up with the tax cuts made for corporations–we have a lot to say on this topic and hope we can find some time to delve into it closer this week.
The Fed Balance sheet showed a relatively massive $22 billion in runoff last week. Certainly this helps the Fed get ready for the next ‘black swan’ event but we question whether raising rates and balance sheet runoff can continue at the current pace–we don’t think so. Maybe another hike comes off next month, but we would be surprised if the 4th hike ever makes it–economic growth will be much better defined over the next 2-3 months–we shall see.
Last week we had just 1 new income issue announced as Oaktree Capital priced a 6.55% preferred unit issue. The issue is trading on the OTC Grey Market under ticker OKTGP right now and is trading in the $24.80-$24.85 area. The ticker for the new 5.625% AT&T baby bond is finally up–TBC– so this issue should trade soon (today?).
The average preferred stock and baby bond fell in price last week by 4 cents and there are 157 issues of $25/share preferred stock trading at $25 or less.