I haven’t traditionally watched the CME FedWatch tool to see what expectations are for Fed rate cuts – an occasional glance. Now I am watching it everyday–I think because my point of view has been so contrary to the general view out there. Simply I have not seen data that has consistently screamed ‘we need a rate cut!!!’ Yes inflation is coming down, but remains above the Fed’s target. Employment has slowed a bit from a year ago, but remains decent. Is there pain in real estate and in the banking sector–yes of course there is, but this certainly should have been expected at some point in time.
Anyway–the CME FedWatch tool is showing a 59.5% chance now of a rate cut at the March FOMC meeting–down from 70%. The tool shows a 2.6% chance of a rate cut in January–fat chance.
Yesterday markets were a bit soft-this morning equity futures are soft. Maybe markets are going to slowly adjust to ‘higher for longer’ interest rates? We haven’t seen huge volatility for a long, long time–remember when we would see equity markets move 1% daily? They don’t happen often anymore–I am fine with that–just pay me my interest and dividends on the 15th or 30th–I’m happy.
Yesterday I did nothing at all. I think I mentioned previously that February and March will bring giant sized maturities of CDs in our accounts and I have no idea at this moment where that cash will go. Some of my favorite positions are ‘full up’–some of my ‘sock drawer’ holdings have room to add shares, but the yields are below my target (7%) which means I need to balance these with higher risk issues. I really need to do more due diligence to prepare for the next 2 months.
Today we get retail sales numbers for December–a number that will be watched closely and then we get the Fed Beige Book release–we will get anecdotal points of view from Fed regions from this. Also we have 3 Fed yakkers–we’ll see if they are trying to tamp down rate cut expectations–Fed yakker Waller certainly did so yesterday we he spoke.
The problem w shipping is….Egypt gets some 9 billion a year from Suez tolls. Without that they won’t survive. Guess who will have to pony up?
Those Abraham Accords don’t look so dumb in retrospect heh?
IMO, Wall Street leans heavely (too much) on Nowcasting, the prediction of the very recent past, the present, and the very near future state, to allocate $.
Outside of a financial crisis, most here knew 6 rate cuts this year was untenable.
Wall Street will adjust to a more rational view as more data comes out. The 10 year is already up as Nowcasting consumes recent inflation data.
Cheers! Windy
For inflation in 2024 the major factor has to be the impact of the current Red Sea situation on supply chains and prices.
This simply has not had a chance to filter through the economy yet, and is at risk of getting worse before it gets better.
In my mind there is an almost 0% chance of a cut in March.
I do expect them to adjust the QT program, however.
This video has a nice 10 minute/10 slide summary of the key impacts to shipping.
For inflation in 2024 the major factor has to be the impact of the current Red Sea situation on supply chains and prices.
This simply has not had a chance to filter through the economy yet, and is at risk of getting worse before it gets better.
In my mind there is an almost 0% chance of a cut in March.
I do expect them to adjust the QT program, however.
This video has a nice 10 minute/10 slide summary of the key impacts to shipping.
https://www.youtube.com/watch?v=hGJLZlsrGF8
August,
Thanks for posting that video. I was having a hard time imagining why shipping rates from China to the United States would go up with the Red Sea route cut off, but now I understand. It was pretty enlightening to see all the military ships nearby. Many more than I imagined.
Voner –
Thanks it is a real eye opener for sure. Even things like drought in Panama play into it.
The thing to keep in mind is that if ships have to add 2-3 weeks to their travel due to routing this *removes* shipping capacity from the system.
This is inherently inflationary.
“Maybe markets are going to slowly adjust to ‘higher for longer’ interest rates”.
I keep reading how the LEI’ s are contracting every month. We have much higher interest rates than 2 years ago and the Fed is off the interest rate pedal. But job creation/ unemployment is lagging indicator and is relatively tame. Could we be in a like luke warm economy for a period? Not to hot not too cold?
Silver has dropped heavy below $23.00 and gold looks like it’s going to break $2,000 today.
Bought some of that new MAIN 6.95% coupon 2029 bond (CUSIP 56035LAH7). Paid 100.90 for the BBB- rated note (YTM about 6.71%) with proceeds from a maturing treasury. Put the rest in a JPM 5.25% one year CD (callable in July). Adding duration via the bond, but it’s a small portion of my portfolio. If you’re going to do a BDC, MAIN has the top-notch management. And a sister BDC ARCC just offered a billion worth of a 2029 bond maturing on the same date as MAIN for 5.875% – it will be interesting where that one prices and where YTM settles out. ARCC also has quality management – I own some of their common but have sold ITM calls against it because I think we might see a pullback in the BDC sector. MAIN and ARCC are my only two BDC holdings.
MAIN BOND IS A GOOD CHOICE FOR ME. THANKS FOR THE TIP.
Inflation Tim? my division was slower to raise prices than the competition. We are now raising prices to catch up and customers are not complaining. They have been very good about accepting it, even expected it to happen. Corporate agenda to kick off the year is see a 20% growth in sales. We know they set that bar too high and would be happy with 10%. One way is to increase prices to grow sales.
Even with high mortgage rates I have read new single family home builders are expecting a good year. As long as we don’t see a large loss in jobs I think that could be true. The other side of the coin is real estate brokers don’t expect a good year. Last year was one of the worst years for the resale of older homes and they expect that to continue which will affect commissions and income.
I think multi family projects were overbuilt the last couple of years and those builders and reits may struggle. This may be the year of the single family builder.
To add to this thought. I was looking at one single family builder of tract homes who didn’t have as good a year in 2023 compared to 2022 but it still wasn’t bad. If mortgage rates fall, even just a little than 2024 could be a pretty good year.