I had plenty of dry powder a month or two ago – and now I have little – not none, but less than 5% of portfolio value. With my buy yesterday of the Saratoga Investment Corp (SAR) 8.5% baby bonds (SAZ) I won’t likely be doing anything for the next week or so–to do buying would require a sale of some other current holding. My ‘dry powder’ will be replenished in 10 days when I have quite a bunch of treasury’s and CDs maturing–my 6/30 maturities amount to around 8% of portfolio values. Obviously when these maturities hit I will need to make decisions as to where to invest the cash–leave it in money market, buy 3, 6,9 month or 1 year treasury bills or CDs of the same maturity dates? Likely I wouldn’t go further out than 1 year right now because my thoughts are that in 1 year we will have falling interested rates–but of course one can’t foresee the future with certainty–but I am thinking 2 more rate hikes in 2023-then a period of flat rates then small reductions a year from now.
Yesterday we saw equities fall back a little, although this slight setback didn’t show any conviction of being a lasting repricing lower. The S&P500 price/earnings is around 25.4 (on current earnings), although I can look for the price earnings ratio and find some sources show it at over 30. Regardless of the correct number it is high on a historical basis and it is really easy to see the index falling 20% in the next year–but of course who knows for sure–not me.
Interest rates continue to trade in a relatively tight range around 3.74%. Looking back the 10 year treasury has been trading in a tight 20 basis point range for 4 weeks – no doubt global investors continue to be happy with higher rates they are receiving compared to the recent past. All of this in the face of continued quantitative tightening from the Fed–through pure luck the Fed is able to continue to let $90 billion/month run off the balance sheet removing demand from the market without driving rates higher.
Today we have Fed Chair Powell testifying before the house – honestly there is not one darned thing he will say that will be ‘new’ news. They will beat a bunch of dead horses and Powell will say they will likely need to raise rates further–blah, blah, blah. Markets will react somewhat as if there is new news–balony.
So here we go with the day!!