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Party Like It Is 1999!

Well let’s get some more money and toss it out of airplanes–even the Federal Reserve is behind the plan – go big (or go home)!

I haven’t watched any business news on the tube the last 2 days-they are probably giddy with irrational exuberance. Whatever–I am only watching interest rates.

The 10 year treasury yield ended last week around 1.46% after popping to 1.61% last Thursday. Now we are getting a pause with the yield falling as low as 1.40% today. Will it go higher? I would think so–the rates move on inflation ‘expectations’, not on actual inflation and while investors are fickle I am not sure that expectations change in 1 or 2 days. On the other hand we have watched for much higher rates for long periods of time only to be wrong.

Last week I added some baby bonds from US Cellular–the 6.95% issue (UZA)–a partial position–(rated Ba1 and BB)–they go ex next week and I wanted to catch that interest payment. This helps balance the few investment grade positions that I own and have taken a spanking of late.

I also added a few shares of the Brookfield Infrastructure Partners 5.125% preferred units (BIP-A) to add to my losing position I had already. This goes in my ‘safe’ (quality) holdings box being investment grade.

So I am watching for the employment numbers come the end of the week–don’t really believe what I hear from the BLS, but a crazy good number (or bad) could move interest rates. A bigger number comes next week when the CPI is released on the 10th–is there inflation or not? Doesn’t matter to the Fed who would simply say that inflation is simply ‘transitory’ – they would have to say this as they have boxed themselves into a corner with dovish rhetoric on a continual basis.

So I watch and wait and act as conditions warrant. Losses in February were relatively minor and a portion has been recouped in the last few days.

47 thoughts on “Party Like It Is 1999!”

  1. Would this summarize the consensus here:

    There’s going to be an enormous explosion of inflation soon, mainly because of direct government spending.

    ?

    Thanks.
    D.

    1. Runaway inflation is the consensus this week. It is wrong, but no worries, some new narrative will turn up soon enough.

  2. As I said a couple days ago its going to be a wild ride. Down 1% last Thurs. up 1/4% Fri. then after Monday and today fully recovered to where I was at beginning of Feb. Interesting day that had the Dow down 146 points end of day and most of the preferred I looked had moved up nicely. Seems like investors had fled to the perceived safety of the income stocks.

  3. only party in town, been watching PSA preferred issues closely since this rate spike. Hold the E and the J, over paid for both, but rolled the dice. It appears from recent price action on the callables I might catch a break. I think there’s a good chance PSA-E might survive a October call and beyond, and feel real confident about PSA-J past ’24. For a notorious caller of preferred’s like PSA I consider that at least a moral victory with an avg yield of 4.8% for a while.

  4. I don’t see an indication of a K-1 for BIP-A
    am I wrong?

    Being based in Bermuda, are the taxes on this income treated the same as a company being based in Canada like BIPC if held in a Roth IRA

    Thanks

    1. BIP-A (or BIP) will get you a K-1.

      Canada has nothing to do with the tax treatment of BIP-A or BIP. BIP is a Bermudian partnership. That the parent of BIP is Canadian has no bearing.

      BIPC is a Canadian corporation.

      BIP-A and BIP are perfect in a Roth. No tax and no withholding. If your brokerage withholds on either get it corrected.

      BIP is the much better holding than BIPC for the long term. For my money, I would be waiting for a better entry point. 45 is good and 40 would be excellent. Put it in a Roth, hold it forever, and the grand kids will thank you.

      No reason at all to buy BIPC. You get exactly the same thing as BIP at a 30% higher price and 15% withholding if not in a qualified account. The premium on BIPC is driven by the institutional holders who can’t hold the partnership. There is no reason to take a 30% haircut as an individual. The K-1 won’t have any UBTI so there is no reason to avoid it.

      1. Bob D
        good clear explanation. Bam has many fans but I’m not one of them as my feeling has always been that Brookfield is more protective of their staff than of unit holders. Their payouts tend to be quite low so that I would rather buy fixed rate product from them if it is right than equities. Only my limited experience. The Bam folks are experienced and if they thought more about unit holders would be good to work with. SC

      2. I just got a K-1 for holding bep-a in my IRA, do I still have to do something with it for my taxes, or just ignore it?

        1. My advice to me …..

          Check and make sure no UBTI. There won’t be.

          Don’t throw it out. K-1s should be kept forever. Never need when you may have to do a basis calculation.

          Otherwise, ignore it.

          1. You can access past K-1s from the vast majority of companies online at one of the two sites that host them for those who choose not to keep them

  5. Tim, I’m reading that commenting on the Reader Initiated Alerts page is closed. Is that intentional?

    [I realize this comment is off-topic, but don’t know where to put it.]

  6. We will see more and more fixed income investors buying equities for income the foreseeable future.

    I am one of them – have a number of CDs in the 3-4% range expiring this year. Where is that cash going to end up do you think? Another CD paying 1% or a Utility paying 4%?

  7. While I agree that the financials on BIP look like investment grade, I don’t see that any ratings agency has given it a rating. Am I missing something here? Thanks.

    1. US$200 mil 5.125% class A ltd partnership units ser 13 Foreign Currency LT BBB-
      Regulatory Disclosures
      16-Sep-2020 07-Jan-2021 EE|UKE

  8. While we’re at it, let’s throw some money at the teachers’ unions and, don’t forget the blue states so they can pay their bloated pension funds (union negotiated, of course)!

    I’ll wait till inflation is nice and heady, which, won’t be too long now, then money markets and CDs will be yielding 3%+. Why fool with uncertain stocks and bonds when cash is relatively safe? It’s what I did in the early 80s and it worked out fine for me.

    1. the worst state for pension fund funding is kentucky whose pension fund is only 33% funded

      1. That’s one way to look at state pension funding. Another way is how much a pension is under funded per state resident. By that measure, the worst off state is New Jersey followed by Illinois. Kentucky is sixth worse off as of the data I could find.

    2. First off, sorry to get political, so stop reading now if that is not what you want to read. Really, Where is there any money in the bill for any union? The money is for costs to schools for the added expense for the cleaning and safety for a very valuable resource, our children and the many teachers who go far beyond what is expected of them, often at below the wage of the average college diploma. As for pensions, the problem is not the union negotiated pension but the fact governments and companies failed to fully fund what they agreed to. Much like many do when it comes to funding their retirement. I had to respond to this since I have 3 underpaid teachers in my family and also enjoy a teamster funded pension that I worked very hard for 22 years to earn.

  9. Article on Market Watch stated” The Reserve Bank of Australia doubled its daily bond purchases to A$4 billion, sending yields on the Aussie 10 year sharply lower by over 20 basis points.”

    Jim Reid from Deutsche Bank in the article also talked about the Central Banks would lean quite hard against a sustained rise in rates because debt is so hard.

    Of course who really knows but I tend to think he’s gotta be right. A trillion spent here a trillion spent there … pretty soon we are talking about real money and even small rate increases have a large impact. At least one would think so….

    1. My question Mike–is the intent of central banks to reject the normal business cycle and put an end to recessions–depressions? Long term I think they are screwed.

      1. Actually Tim, I believe the current intent of the FED is to just maintain the status quo—which in the long term is very low, but steady/stable GDP growth. We now have a mature economy with an aging demographic profile–kind of like Japan and several other western European countries. The Fed will work hard to keep interest rates down for almost forever. Most of us on this website live off of dividend/interest income. I think we need to adjust our thinking to just accept low interest rates. To do otherwise, imho, is just swimming against the tide.

        1. Hi Randy–exactly my point is that that Fed is trying stop any possible normal recession by tinkering with financials to finance irresponsible government spending. I am guessing, although we have never tinkered like this, that long term this policy simply won’t work.

          Certainly the pandemic is a very rare occurence (fortunately) but at what point do you not continue to promise low rates? Rates need to have some sort of ‘natural’ movement – up and down, instead of the Fed promising QE forever.

          1. When they have a bout of stagflation, the Fed will jack up interest rates like a NASCAR tire changer.
            Food and energy price inflation was off the charts last month, and it looks like the economy is going to be shocked again in a few months by two competing things.
            1. Mortgage relief ending, which is going to kick the legs out from under the real estate market with the huge influx of properties onto the market.
            1. Service businesses opening back up to full capacity like TX and MS did (stupidly, IMHO) today because every infectious disease doctor thinks that the cases are going to skyrocket again and hundreds of thousands of vaccine doses will have been wasted on people who caught COVID after the first dose and are now exposed before the immune system has had a chance to work. The initial vaccine dose just turns the person into an asymptomatic carrier of the virus prone to infecting other people.

            Texas could have waited a few more weeks and avoided this completely

            1. Gov. Abbot was stupid…for instituting the mask mandate in the first place. It’s sad that others are too slow to see what is happening in Florida and cannot learn from it. I’ll continue to hold out hope that eyes get opened somehow.

              This Texas is counting the minutes to ditching the masks and enjoying his freedom.

            2. Justin-
              “The initial vaccine dose just turns the person into an asymptomatic carrier of the virus prone to infecting other people.”
              I think it would be good to re-word this to reflect the prior sentence about those who contract Covid after the initial dose ( and of course immunity is building in the 2-4 weeks between doses, so probably not many as it sounds).
              The point being some would read this and think the vaccine gives you a low level Covid infection. But- there is no Covid virus -alive or dead in the vaccines.

            3. Sorry Justin – but this “1. Service businesses opening back up to full capacity like TX and MS did (stupidly, IMHO) today because every infectious disease doctor thinks that the cases are going to skyrocket again and hundreds of thousands of vaccine doses will have been wasted on people who caught COVID after the first dose and are now exposed before the immune system has had a chance to work. The initial vaccine dose just turns the person into an asymptomatic carrier of the virus prone to infecting other people.” is not accurate

              First, plenty of evidence lockdowns had little effect on viral spread
              Second, you are wrong – first doses provide a high level of protection. They do not turn anyone into a carrier infecting other people. Even if you became infected a couple weeks after your first dose, most people would benefit from that first dose in fighting off the infection.

              Kudos to Texas for eliminating the silly lockdowns

              1. I should have been clearer. Before full immunity kicks in about 4 weeks after the 2nd dose, someone who receives the first dose of the MRNA and Pfizer vaccine can contract COVID from someone else, (the medical professions are seeing this all over) and spread the virus just like someone who is unvaccinated.
                New Zealand and Australia among other jurisdictions would beg to differ about the effectiveness of lockdowns.

                1. Wee Justin – a few points

                  1. Technically there is no full immunity even after the second dose. The effectiveness is about 95% seven to 14 days after the second dose. But even if you fall in that 5% who can still be infected the vaccine will greatly lesson the effects

                  2. The first dose still achieves 85% effectiveness – so while technically yes someone who has gotten the first dose can contract covid, the number who actually do and then spread it are minimal)

                  (https://www.wsj.com/articles/single-dose-of-pfizer-vaccine-is-85-effective-israeli-study-shows-11613723218?mod=wsjtwittertest19

                  3. As to lockdowns and their lack of effectiveness, you can not compare Islands / or small island continents to states in the US. Florida has had no mask mandate & has been largely open with schools in session while NY and CA have mask mandates, school restrictions, lockdowns, etc. And yet Florida has performed better than NY & CA

                  1. Not sure how you can say FL did better than CA/NY. compare excess deaths between the states. NY got hammered at the beginning, but was low over the summer, and Florida was hit over the summer.

                    Excess deaths per day hit each state at a different time, with the exception that it seems every state was hit in the period between Thanksgiving and mid-January.
                    And the lockdowns caused a change in the death tolls in certain states because it greatly lessened motor vehicle deaths, which is the #2 cause among people under 50
                    https://healthcostinstitute.org/hcci-research/daily-deaths-during-coronavirus-pandemic-by-state

                    1. If you want to look at deaths – lets look at the real numbers:

                      https://www.beckershospitalreview.com/public-health/us-coronavirus-deaths-by-state-july-1.html

                      COVID deaths per 100,000 residents:
                      1) NJ 263
                      2) NY 244
                      3) RI 239
                      4) MA 236
                      5) MS 227
                      6) AZ 221
                      7) CT 215
                      8) SD 214
                      9) LA 208
                      10) AL 205
                      11) ND 194
                      12) PA 189
                      13) IN 188
                      14) IL 180
                      15) NM 179
                      16) IA, AR 174
                      18) SC 167
                      19) TN, MI 166
                      21) KS 165
                      22) NV 162
                      23) GA 162
                      24) TX 155
                      25) DE 148
                      26) FL 146
                      .
                      .
                      30) CA 135

                      So FL did far better than NY/NJ and better than 50% of the states. They were just slightly worse than CA – but FL has a much older population (20% geriatric) while CA has an incredibly young population. And yet FL was open while CA locked down. So yeah FL did better factoring all of that in

                      And then look at what happened as CA lock downed even more and FL opened up – OOOPS

                      https://pbs.twimg.com/media/Evqt8snUYAQpzbL?format=jpg&name=large

                      So yes the evidence shows lockdowns are not effective

                    2. Referring to Mav’s numbers, the figures I’d like to see would be those adjusted for age differences, smoking rates, and other legitimate differences. A real apples-to-apples comparison.

                      You can’t, for example, compare an area that has an older population with lots of smokers to a younger region with few who light up. Just ask the people who design clinical trials for drug companies. if you brought such data into FDA you would be laughed out of the room.

                      But that’s exactly what is done with COVID data. To my jaundiced eye such comparisons are driven by a dishonest media and gladly picked up by even more dishonest politicians.

  10. TIm-
    Are you saying UZA is IG, or just that the higher yield is off-setting your IGs?
    QO has Ba1 / BB
    thx

  11. I get on average 2 to 4 new bond offerings weekly from Schwab Pinnacle Team. Its so PAINFUL to get them. Just as a quick example Caterpillar came out with a new 10 Year Bond Today with a 2.2% coupon. Entergy had a 10 Year with a coupon of 2.6%. I feel bad for the folks out there that are 100% in fixed income.

    1. Chuck P–Hard to plan for a decent future on 2.6%–a little inflation and you are negative.

      1. Seems to me that more than just “a little inflation” is in store. Any money in fixed income investments needs to be watched very closely. You take a vacation from your investments and it may take a vacation from you.

      2. one of the best purchases i made was 20 years ago.I bought series I savings bonds
        3.5% plus the CPI. bought the maximum i could in 2000 and 2001.

        Ive just let them sit for 20 years they continue to accrue interest for 10 more years

        1. rdking–we have a pretty good stack of them also–in fact I need to thin them out as we have them back to 1990 or so–I think they will stop paying interest soon.

        2. I did the same thing, very different reason. At the time you could buy them with credit cards for no fee. So I bought a bunch to get the points to travel for free!

    2. party my A** , three years ago my mother was ready to go to assisted living. We sold her home had her assets laddered in 3+ year cd’s. She’s now 94 years young and doing just great, if not seeing her 5 soon to be 7 great grand children up close and personnel for over a year is great. Financially she’s used up the proceeds of her home but still can afford her assisted living for several years. Only CD that I even considered was a 10 year @1.60% but i talked myself out of that idea real QUICK. Its a “damn shame” I know there are other alternatives but I refuse to put one cent of her and my dad assets set aside for her now at more risk than fdic insurance or other fiat government guarantees, I just proud for my Dad that my mom should leave this world without taking 1 cent of their helicopter money other than the stinking stimulus.

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