Quiet Markets Not Likely to Last

Both equity and interest rate markets were pretty darned tame today–and our feeling is that investors should enjoy tame days when they occur.

With the political turmoil we see occurring, plus telltale signs that there are some cracks in the economy, we have the distinct “feeling” that it is going to be a very rocky second half to the year.

We see Wells Fargo laying off mortgage employees in the Midwest–300 in total I believe–business is slow. Not a huge surprise–inventories are low and wages simply have not risen much for the “move up” buyer–folks are sitting tight.

Today Harley announced they planned to move some production off shore to get around the tariffs imposed by the EU and POTUS promptly attached Harley–we don’t need that and for sure it is something that should have been expected.

The ag community is getting crushed as soybean and corn prices have gone off a cliff as the tariffs with China get closer and closer (a July 6th effective date). This is just 6 weeks after prices spiked higher on news that China was doing away with ag tariffs in exchange for an agreement not to sanction Chinese company ZTE. Many people in non ag states believe that poor farming profits have little affect on them personally you can be certain that deep troubles in the midwest reverberate through the entire economy.

Even with this turmoil markets are looking for an interest rate increase in September–although the more turmoil that occurs, the higher likelihood that the FED could take a pause. This is one that is yet to be determined.

And of course we have the political turmoil. In one breath I am disgusted with the behavior of supposedly semi intelligent people–then I stop and think about the activities around Viet Nam in the 60’s and early 70’s. While I wasn’t a big anti-war protestor as I was a couple years too young my first year of college I did participate in some–lots of angry people. So I guess now, like then, will pass and all will be better.

Pour on top of the items above the budgetary problems of the country–including Social Security and Medicare and we about have our hands full. Not certain how these will be resolved in the current environment, but at some point congress, with a gun to their collective heads, will come together for at least a partial fix.

So with this laundry list of items we now are starting to feel less confident in our prediction of a 10 year treasury at 3.25% by the end of the year. The more global turmoil the more folks move to the safe haven investment of U.S. treasury debt–guess that’s good since we have more than enough to sell to them.

23 thoughts on “Quiet Markets Not Likely to Last”

  1. TIm, thanks for the update on corn and soybean prices. Farmers are probably having a tough time making money, which partially explains why FPI is trading below book value. I’ve got a few shares of FBI-B and may purchase more shares on any weakness.

    1. kaptain – I think Pittman at FPI has his hands full (not that he hasn’t had since day 1).

      I may need to take a look at FPI-B now that the shares are trading at more reasonable levels.

  2. Any trading thoughts on these commodities like SOYB that are getting hammered? I bet the trade-war worries will be behind us in a couple of months. If a “deal” occurs with China then these commodities will likely see a strong reversal to the upside. I’m watching DBA closely and may start to nibble a few shares.

    1. Hi Leonard–I almost hate to mention these on here—but I have built a too large position in the CORN ETF–I am down a little on it, but I think A) if a deal in China comes about (even though China buys little corn from us) or B) the USDA brings estimates on the crop down I would not be too surprised to see a $1 or $2 gain in these ETFs. I think SOYB is better for a wager on China–but both may work based on poor weather.

  3. Interest in the World Cup Football tournament may have a lot to do with the quiet markets Tim was alluding to, especially outside the United States. This is actually a documented phenomena so I’d expect things to remain quiet at least until after the finals on July 15th.

    1. Thanks Citadel–never even gave that a thought–when I see it on each afternoon I change channels as quick as possible–will never be a soccer fan.

  4. agree please no politics.. twitter provides Norm and others a good outlet to express in a public forum or write a free blog..

    most of us miss Norms excellent fixed income reviews .. as Tim said previously, Norms income notes would be a welcome addition to the III site discussions!

    but isn’t it interesting he was dropped from SA for his views but for two years Brad Thomas could “trump” away unfettered including pushing his latest “book” .. I can think of 3 other prominent money makers (for SA) on both sides of the political spectrum who continue to mix their views in articles and comments continuously and get down, dirty and nasty with patrons/commenters.. of course if you have 50k followers and help pay the bills, that is “different”..

    1. I dont think norm income notes were very accurate or rewarding…..try arbitrage trader on SA , deals with preferreds also and is extremely knowledgeable and in europe not US

      1. Hi Rick–I read AT–but don’t really use his stuff much as he is more about trading or doing some sort of long/short play, while my real desire is a long term holding.

    2. Bea–certainly pays to have 50,000 followers on SA–for some reason I think there may be a little preferential treatment.

    1. I fully support the comments about politics being unwelcome here. It is disruptive, and greatly damages the value of the website.

      Have seen so many good boards destroyed due to posters who feel the need to push their political agenda in every area.

      1. Glad to see you know how to turn on the computer again, Inspbudget. You have been too quiet lately.

    2. Gary–I knew when I “turned on” the comments this would happen sooner or later.

  5. Without saying whether I agree or not, this sort of political opinion post has led over time to the ruin of good sites.
    Were it up to me, I’d send the dude packing.

    1. Reuben–that is the last warning I am giving him–this will not go the way of Yahoo Finance many years ago.

  6. Hi Norman–I don’t want to have to keep warning you each time you come to the site. I let the plug for your book go through one time, but told you that would be it for the book plug. Now you go in a new divisive direction.

    Unfortunately if you want to turn this in to a political rant site I will ban you.

    Final warning.

  7. Norman, you were distinctly thrown off of SA because of your extreme left wing political views. You were warned numerous times and still did not comply and continued to post fatuous and radical thoughts. This is a great place to share INVESTMENT ideas. Please keep all of your vacuous political views away from Innovative Income Investor and we will all be better for it.

  8. i agree with your view about getting to the end of Fed rate hikes. I agree with you that maybe the Fed shouldn’t hike in September. However, my view is September is a given because this Fed under the new chairmen is somewhat aggressive. Here is why.

    I was not overly surprised that the Fed changed it’s forecast to add a 4th rate hike, it was only 1 additional vote and PCE is about 2.1%. What I did expect is for the Fed at the same time it added the 4th rate hike potential was the talk of moving to neutral. They did not. Instead they have forecasts for more hikes in 2019 or 2020. Based upon what? They should have been introducing “neutral” into the conversation and saying that the Fed will be responding as they need to. Instead, they seem to want the 10 year to be at “it’s historic norm” of 4%. Our new chairmen says he doesn’t have a targeted interest rate in mind. To me, his forecasts don’t match his statements. I know I am in the extreme minority – so be it. By the way, I hope I am way off. IMHO, the discussion should be we are approaching neutral and until I hear that I remain skeptical of our new chairmen.

    For what it’s worth, Morgan Stanley just projected 3.12% already hit as the high for the year. In other words, they agree with you. No September increase (up in the air)

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