After an exciting week last week we are likely to see quieter action in the equity markets for this week given that we have a major holiday on Thursday and there will be a lack of action in all corners for the entire week.
The Dow Jones Industrial Average traded in a range of 24,935 to 25,967 before closing the week at 25,413. The 10 year treasury drifted lower all week long as it opened last Monday at 3.19% and finally closed the week on Friday at 3.075%-a relatively large drop in current yield given that we continue to have pretty strong economic indicators–I think the bond market IS NOT buying the talk out of the ‘smart folks’–stock jockeys–and certainly this is most true for the tech stocks on the NASDAQ. Seems to us that the equity markets still need that big downward plunge to get all of the nervous nellies out of the market–that 1000 point Dow plunge.
Last week we had the consumer price index announced on Tuesday and it came in right on forecast at plus .3% with an increase in the core rate of plus .2%. While the .3% increase was the largest increase since January the bond market yawned and closed the day with the yield off 3 basis points. The wage component of the release had wages actually fall when inflation adjusted and over the course of the last year wages have increased .7%–sickly. With this wage increase we may have to finally concede we are wrong on wage inflation, which we believed would eventually flare up–but so far that has not been the case and I believe we are getting pretty late in the economic cycle to see it happen now. Retail sales in October came in above forecast (plus .8% versus forecast of plus .6%). The Empire State manufacturing index was stronger than anticipated while the Philly Fed index was weaker than expected–continued conflicts in indicators. Industrial production was a bit stronger in October–but just a bit.
For the coming week we only have a few real economic indicators being released because of the holidays. On Monday we have the Home Builders Index, on Tuesday we have Housing Starts and Building Permits–all important pieces of the puzzle as almost anything housing related has been weak and we think this will continue with the release of this information. On Wednesday we have Existing Home Sales being released as well as the Durable Goods report for October and Consumer Sentiment. Virtually all of these numbers could be woven together to forecast consumer economic health.
The Fed balance sheet grew by $4 billion last week so interest rates were not disturbed by any Fed run-off.
There were 2 new income issues announced last week. 1st Braemar Hotels and Resorts (NYSE:BHR) announced a perpetual preferred that came to market priced at 8.25%. The issue is trading on the OTC Grey market right now under the temporary ticker BHRPP and is trading around $24. Also insurer Enstar Group (NASDAQ:ESGR) announced a 7% perpetual preferred which is trading OTC Grey market with a ticker of ESGRL and is trading around $24.65.
Last week the average $25 preferred fell to $23.90 which is the lowest price in years–this is because of the plunges in the California utility industry preferreds (Pacific Gas and Electric–PCG) and there are now 253 issues trading at $25 or lower which is 12 more than last week.