Monday Morning Kickoff (On Tuesday)

Well this is a week with a big economic release so we will probably have more large swings in the equity indexes. Of course if we didn’t see big swings I would be pleasantly pleased. Friday we have the ‘official’ employment report–it is expected 270,000 new jobs will have been created in June which is much softer than the previous month in which 390,000 jobs were created–this will help to confirm a softening (or not) of the economy. The unemployment rate is forecast to be 3.6% which is flat month to month.

Last week we saw the S&P500 move lower by 1.9%–partially reversing the out sized 6.5% gain from the previous week.

The 10 year treasury yield fell sharply on the week–closing the week at 2.89% which is 23 basis points lower than the week before–recession bells seem to be ringing according to the bond market. Of course we all know that rates can reverse instantly and in 8 days we have the consumer price index (CPI) being released and you can plan on that number being market moving.

Federal reserve balance sheet numbers were not released last week on the normal schedule–guess the Fed was doing an extra long weekend.

The average $25/share preferred stock and baby bond moved only mildly higher last week as the recessionary concerns seemed to continue to counter the sizable fall in interest rates. The average share was up a measly 10 cents. Investment grade preferred’s moved higher by 12 cents, banking preferred’s by 22 cents while mREITs moved 26 cents lower. CEF preferred were 4 cents higher ocean shippers were up 6 cents.

We had no new income issues priced last week

9 thoughts on “Monday Morning Kickoff (On Tuesday)”

  1. We are staring down the muzzle of the QT cannon and bracing for an explosion of interest rates to the upside. What were rates the last time inflation was this high? Traders will front run the Fed and amplify the move. Buckle your seat belts, this is the BIG ONE……………but wait….

  2. So many folks across virtually all financial media bang on the FED. Endlessly!

    As if the FED is guided by the Wizard of Oz, and is expected to be all knowing and every decision is always 100% right. And/Or they have always been completely clueless, and the Chairs are only academic with no real-world experience, or … The markets will always adjust appropriately, regardless of FED decisions, ala ‘Efficient Markets Theory’.

    BTW, short aside >> about 10 – 15 years ago, Warren Buffett gave a talk at a university graduation and completely eviscerated ‘Efficient Markets’. Short reasoning>> he would not be able to purchase firms at compelling valuations if everything was always ‘perfectly valued’.

    While the FED is tasked with several primary mandates, including; employment, economic stability, inflation, USA exchange-rate support, it’s responsibilities are supposed to non-partisan and free of political influence.

    Sadly, has not been so for many decades, and was heavily affected during Trump’s tenure. Perhaps consider the multitude of influential groups/orgs that insert interests and apply pressures. It must be quite a sensitive dance!?!?

    Can the FEDs decisions and actions move markets? Absolutely. Is there need for a Reserve Banking institution? IMHO – Yes. Otherwise, the tendency, especially in this country, is toward Cowboy Capitalism. May be good for a relative few. Not so great for the majority.

    Are the FED’s actions solely responsible for all economic effects? Probably not.

    Personally, I am fairly pleased that Inflation and Interest Rates are finally being unleashed. Buying any decent reliable Yield% at attractive Discount for the past 5 – 8 years has been quite daunting.

    I am quite OK with falling capital asset values when it provides significnt opportunities to purchase 7.50 – 12.00%++ Yields on an ongoing basis.

    just fyi …. 2007-2009 was one of the most incredible times for the ‘Old’ YieldHunters!! -:)))

    jmho… steven

    1. Haha, go Steven!

      Human nature is to play monday morning quarterback.

      Hard to be a leader.

      Btw, go tom Brady!!

  3. Yes, I don’t get it. With household savings high, the Fed will keep raising rates, trying to reduce demand and failing. Then doing it more and more with same result. The great irony will be that supply problems will ease, prices go down, and the Fed will claim credit. The 1979-80 oil crisis eased by itself but Volcker claimed credit, after killing the economy.
    By the way, a major MIT study showed that the 1979-80 crisis was a demand crisis–small Iranian disruption of supply led to every tank getting filled to the brim out of fear. Same thing now?

  4. Don’t get caught in this bear trap. At this point every rally is a suckers rally. Only short term trading opportunities. The trend for this market down for a multitude of good reasons with the price of oil as only just one, but oil alone is going to send the price of almost everything up given its impact on transportation and farming costs. Every business, small and large is going to feel the pressure to increase prices, add that on top a labor shortage and you can bet on inflation going up.

    1. Given that oil is now at $99/bbl (down $9/bbl today), I would say that this post didn’t age well. I worked for Chevron between 2006 and 2017, and I was a contractor for them prior to 2006. I remember the lean years prior to 2005 when oil was well below $50/bbl, and Chevron was only working on required maintenance projects and regulatory-driven capital projects. During the period from late 2011 to early 2014, the price of oil averaged about $100/bbl, which is where it is at right now, and Chevron made a ton of money even after spending record amounts on capital and maintenance projects. Gasoline prices in the western U.S. typically ranged between $3.50 and $4.50/gal at that time. With current gasoline prices in the western U.S. ranging between $5 and $6.50+/gal., oil companies are making more money than ever, although I’m sure they are also spending like crazy (I remember the days of management telling us to get more projects running ASAP to spend as much as possible before the end of the fiscal year).

      Trust me – I am not a fan of, nor an apologist for the oil companies. By controlling their own drilling and by planning out drilling projects about 1.5 years in advance based on their own economic forecasts, they create their own peaks and bottoms. But, compared to the 2011 to 2014 period, oil is actually flat. If you go back 20+ years, the price of oil is increasing at an average annual rate of about 3 to 4%. The increased price at the pump, however, is greater than that. A big part of that is because oil companies have spent a tremendous amount in capital projects in the last 20 years, and they want to regain their costs. Most of the cost increase, however, is just because they can, and they don’t give a damn about the impact on inflation. If Americans want to see oil and gas prices drop to reduce inflation, they simply need to drive less. But, for the most part, they won’t.

  5. At least according to the crew on Bloomberg Surveillance the entire Quantitative Tightening and run off of the Fed’s balance sheet is a fantasy. In fact, according to Bloomberg the Fed’s balance sheet hasn’t decreased at all.

    1. Raising rates without tightening is like running the air conditioner and the heater at the same time

  6. We are witnessing the feds boom & bust policy all over again. Let’s fix the supply problems by destroying demand. PERFECT. As my favorite philosopher once said – STUPID IS AS STUPID DOES.

Leave a Reply

Your email address will not be published.