Party Like It Is 1999—At Least for Today

1 day after falling off a cliff the DJIA is in party mode–of course we know that tomorrow brings an important economic number that could send the Dow even higher or it could send interest rates much higher and the Dow much lower.

Tomorrow we have the 1st look at 3rd quarter GDP with a range of 2.6 to 3.8% expected by the smart folks  (hell we can all throw a dart) with an average of 3.3%.  If the number is 4% does that send the Dow higher or lower?  Almost certainly it would send interest rates higher as it would give the Fed an arrow in their quiver for a December rate hike.  If it comes in weak–say 2.5% does it send the Dow higher or lower?  A weak number would likely send interest rates somewhat lower-for now.  Likely something around 3% would probably be met with a yawn.

The other item being released tomorrow is consumer sentiment.  The expected number is 99 which would equal last month.  The range of guesses is 98-100–so pretty tight.  The question is whether the stock market moves and the higher interest rates are putting a dent in confidence–remember that consumers drive the economy so large surprises here are important.

We have been mainly just sitting tight–from an investment perspective.  We have messed with a couple quick flips with REITs Ashford Hospitality (NYSE:AHT) and Independence Realty Trust (NYSE:IRT) both of which we flipped once each for $150 profits–I call these boredom moves.  We do 1000 share positions in these low priced shares when values are hammered lower.  We don’t write about these as they are not investments really—but just like going to Las Vegas with max exposure of $10,000.

Relative to income issues–the real investing–we have pondered a continuing very minor move into super quality issues (think CEF preferreds).  We think over time as rates rise and near a peak we would love to own a pot load of these preferreds, but right now the max current yield is in the neighborhood of 5.80% and we really want 7% (likely wishful thinking).  We do already hold a couple of super quality issues like the AllianzGI preferreds which have come to market lately at 5.50% and 5.625% respectively.   When we do this we are well aware of the interest rate risk, but over time a minor capital loss is covered by dividends received.  Readers know (I think) that I am extremely conservative and I like the safety of CEF preferreds–even with the likely capital losses.  I don’t mind the capital loss–as long as it remains minor.

For now we are pretty loaded with our term preferreds and baby bonds and honestly believe that it will be January before we get serious about any large scale portfolio moves–as they say it is ‘data dependent’.

6 thoughts on “Party Like It Is 1999—At Least for Today”

  1. Looks like Amazon and Alphabet are leaving the party after hours today. When the rock stars leave, lots of others follow…

    1. Holy Moly—you are right Roger. I see Amazon down by 145 and GOOG is off 46.

  2. My thoughts exactly Roger. No matter what the GDP comes in at tomorrow, the results from those two tech giants can’t be good for the markets chances of going up at the open tomorrow. I’m probably wrong but I see a down day. GDP comes in light….the downside gets magnified because of tonight’s poor earnings reports. GDP comes in high….rates spike and the market closes lower. Now maybe I’m just a natural pessimist.

    1. Wow 3.08% on 10 year BEFORE GDP is announced ( I assume that selloff driven by poor earnings last night).

      I am not sure if we will know for sure how the GDP influences the 10 year. Lots of stuff happening in this market. Everybody is focused on fed and tariffs but some of the companies are saying strong dollar is hurting their overseas sales. That seems to becoming a 3rd factor hurting corporations

      1. SteveA–I noticed the interest rates drop last night with the Amazon and Alphabet results–I don’t recall seeing a couple of companies have that kind of influence before.

  3. Amazon is slowly turning into a company whose forward valuation will be based on GAAP earnings and not revenue growth and no one yet knows what the multiple will be. Analyst this morning states that Amazon has a good chance of $50 per share in 2020 so a multiple of 40 is needed to get back $2,000. Anyone’s guess.

    CNBC has continued repeating the rumor that a Chinese hole card is to stop importation of US-made chips into country. Look at SOXX to see the effect.

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