Common stocks are having quite the little tantrum today as the Federal Reserve starts to ponder tapering quantitative easing (QE) down the road.
For those watching CNBC today James Bullard, the Fed president in St Louis, made his position quite clear which started off the tumble in stocks. He wonders why the Federal Reserve is buying so many mortgage backed securities during this time of strong housing demand and rapidly inflating prices.
The funny part today is that treasuries are going the opposite direction to stocks as the 10 year treasury is off almost 6 basis points to 1.455%. Seems like rates would be ticking higher–but not the case.
Regardless of market action today I see this as more of the same–interest rates pop and then drop.
Today and over this coming weekend I am looking for new dividend captures for next month. My watch list has been hammered by redemptions and those left on the list are trading at sky high prices–so time to go back on the hunt.
Most of the comments remind me of the expression “rearranging the deck chairs on the Titanic”. I believe its a futile exercise to both try and understand a marketplace that is totally irrational and at the same time try to protect yourself from what has to be the inevitable collapse. I’m not talking a 10% correction, I’m suggesting the Fall of the Roman Empire Part 2. And yet, there’s no place to hide and its unaffordable to not be in game.
I agree with Max, the Fed will never raise rates. Its already been 12 years of zero percent rates and now we have real negative rates.
I don’t know if the term Black Swan is now considered an affront to racial inequality but one such event and I think we are all toast.
Yeah, I had a bunch, too, but didn’t count them. Coulda been maybe more than ten. We live in a strange world. I get maybe 15 spam calls a day. No matter what. Block their numbers, punch the ‘do not call me again’ button, whatever. On and on it goes.
Oh well. I could be dead. So there’s that, too.
JMO
Camroc, FYI – most cell phones have a setting that that only accepts (rings) calls from your contact list. All non-contact list calls go straight to messaging without ringing.
Thanks, mikeo. Took awhile, but I finally found the settings and that should take care of that irritation.
If looking for dividend capture and do not mind a bit of stock risk then consider AGNC common stock which currently yields almost 8.5% or its two Preferreds each of which trading in $25s and yield over 6%. All ex-divd 6/30.
AGNC broke from a rising trendline from Dec20 in $18s and now at what looks like decent support in mid-$16s. One reason it may be down past few days is fear of Fed taper and buying fewer of MBSs. AGNC is also doing a 72 million share sale.
AGNCO was a dividend capture candidate earlier this week, though it may have already made its move.
Just about every REIT common dropped a little today. I don’t play them much, preferreds are less volatile.
AGNC down due to big drop in NAV, triggering other REIT drops, i.e. NLY.
My preferreds are doing nothing this week. Went all cash Friday last week in my other account hoping for the annual June swoon. Good time to start throwing all your money in the UDOW and UPRO for a trade and use the winnings to host a block party on July 4th.
I dont think the Feds know anything. They are guessing like everyone else, but with “transitory” inflation. We should not forget everyone was sayin don’t worry its “Transitory”. I did not hear anyone ask JP what happened with your word “Transitory”, that he said 100 times.
IMHO there is no way that the FED will raise interest rates, doing so will cause a default on the deficit. Its all a lot of talk and distractions, pounding down risk on assets like gold. Sending mixed messages having Bullard say things that JP tells him to say. Its all a con
Yesterday I ordered lunch from my favorite Chinese takeout restaurant. I noted that they increased the prices on all their menu items for the 2nd time this year. I don’t think these increases “transitory”. I bought a new car in May and sold my 5 year old car for slightly more than I paid for it 2 years ago. I ordered new carpet at Lowes yesterday and the price in the system was up over the price marked on the floor (3 different carpets). Everything seems to go up for me except interest rates. I refinanced my house at 2.5%. I guess the savings will go to pay for everything else that’s going up.
I reroofed my office and paid $3,000 more than the quote 2 years ago.
Roofer said wood is in high demand and they have no choice to but to pass it on.
Lunch at Chick Fillet was 24.95 2 days ago.
Grilled chicken for me, Cobb salad for the Missus with chicken on it.
2 drinks, Root beer of course, no ice and French Fries.
Inflation will not be transitory In my opinion. I raised prices for my fees this year because my Insurance, Property Taxes and utilities are higher.
Am 70% in cash and I can sleep well. I know Wall street and Washington are saying “Don’t worry” but their trick record is well known.
“I can sleep well”. … The psychology of investing and wealth is not appreciated enough IMHO. We all can speculate, but in the end, we all have cloudy crystal balls. But if one is in that sweet spot to control their destiny, sleeping well is just as or more important than anything.
History has shown both sides with inflation. We have seen close to 15% ten year bonds with double digit inflation, and we have seen the opposite for years on end..That being double digit inflation with 2% ten year bonds at the same time.
For me its been about “tilting” but staying fully invested. But each situation is different. My main meal ticket is my pension, and its a COLA one. And considering my main expenses are fixed, inflation is largely immaterial to me. So that obviously has an impact on my thinking.
To Gridbird, Tim, W2R, CW and others, Happy Fathers day.
Hope you fathers out there get what you deserve.
Back on topic:
I was always self employed and invested in income producing condos at the bottoms of the real estate cycle (usually 3-4 years after a stock market crash). In my late 40’s up to the present, I put away the maximums in a ROTH IRA and a SIMPLE plan.
So enjoy your COLA, I’ll enjoy my Root Beer.
Lastly, I want to say that this site is chock full of ideas and a fun place.
Thank you, Tim.
Newman,
It looks like you have been disciplined and brave in your actions! You are in the accumulation phase. Not everyone in America believes that that is what is required to make it in a private-rights society.
I have taken a very similar path and will plant few signposts to you that you may already be fully aware. These details all work in a dynamic and I was mentored and drilled by a hardcore CPA who ran his family businesses (farms/property) and I am bound to honor his instruction for my life’s success in this culture.
– Itemize, label and retain every evidence on each property forever. File accurately, based on records.
– Use a system that run parallel to the input lines on the tax forms.
– Consider mastering the 1031 exchange schema. It is a powerful tool, esp if you have a cooperative multi-generational-plan and are in the right markets. I wrote a FINRA-approved book on these ideas, but never turned it into a business. Don’t believe anyone, esp a Realtor. You MUST know you are compliant and work thru an intermediary who KNOWS their stuff. Keep these records forever.
– Plan exit strategy for each property. Likewise a coordinated distribution phase plan.
– Plan on getting a full-monty IRS audit at some point. I went thru this. I paidan atty who only presented to the IRS and he said he had never seen anyone present proof like the system that my CPA had set me up with. Nothing happened except two weeks of time before the tribunal. I could digress to very successful operators who failed at a critical point in their latter years because they could not stand-and-deliver. You want to laugh at the request and rest reassured, even if it never happens.
– Be especially wary of accredited broker investments, esp if tied to a 1031 exchange. Likewise, if trying to use IRA funds/mortgage/titling to own real estate, be prepared for scrutiny and burden of proof.
– Lastly, use LLC firewalling between each property and detailed insurance/bank account titling. THIS is actually an indicator of intent and compliance (ie: pierce the veil).
In the spirit of encouragement to you and hope this is helpful to someone else. I owe a debt to others for this training and hope the ripple goes out.
PS: Too bad our leadership is not held to such scrutiny and evidence. JA
JA,
Yes, I know the rules you mentioned.
I was audited 28 years ago and there was no change.
But as I get older, fog brain sets in.
The IRS is not my whole focus. Whatever they bill me, I’ll pay and move on. I will retire in 2022 from full time to part time.
That CPA was right, but the amount of record keeping is tedious.
The IRS audits anything out of the parameters they set.
I have a good understanding of those parameters.
Schweet! It is too painful to work thru decades and have a mis-step occur.
I hope anyone who may view our dialogue as a forewarning of due diligence.
Live Long and Prosper…or with real estate…Perspire! JA
being in my mid 60’s am old enough to remember the last big inflation scare in early 1980’s. Had just finished university and joined one of Canada’s big banks in 1980. Computers were just coming into banking so my job as trainee was still doing manual loan calculations on our branch lending portfolio as the prime rate was changing a couple times a week. My parents (and every senior of their generation) always remembered 1981 when their Govt of Canada savings bonds paid 19.5% interest that year – but as I told my parents it couldn’t last as my car loan was 22% and mortgages were also in low 20’s with many people just bringing their house keys into the bank. So this talk about inflation /deflation certainly catches my ear and the implications going forward
I was a college student when inflation started. Money didn’t mean much to me, I didn’t have much or spend much. Then I job hopped because the pay went up rapidly. So my memory of Inflation is “Damn, I must be good at my job!” stupid young person.
Martin said: “Money didn’t mean much to me, I didn’t have much or spend much.”
Martin, probably everybody around here is roughly your age or younger. Stated differently we probably do NOT have an III poster that was retired when inflation was roaring in the 1970’s or early 1980’s. You would have to have been born roughly in 1915 or before, and be ~ 106 years old today. Any III’er that is over 100, please speak up.
Inflation back then was devastating to seniors living on fixed income, pensions and/or social security. Some of them literally were eating Alpo because they could not afford regular food. Other’s were forced to sell their houses because they could NOT afford the property taxes. Recall that Proposition 13 in California that limited property tax increases was voted into law in 1978, so a lot of inflation had already occurred. All of us that did NOT live through it as retirees cannot appreciate how bad it was, me included. (I was fortunate to spend time with a mentor that educated me on it.)
In round numbers, the Dow hit 1,000 in 1966 and when it climbed back above 1,000 in 1982, it was worth ~ 333 after inflation. So you lost 2/3rd’s of your purchasing power over 16 years. And fixed income generally did WORSE than that.
Not that I am forecasting the US will return to that level of inflation, but it would be really ugly if it does. Stocks and preferreds/babys would be crushed. What if you owned the new PSALL with its 4.0% coupon when new preferreds were IPO’ing @ say 15%? Stated differently when all of us buy ANY of the newly issued preferreds/babys, we are implicitly assuming inflation will NOT spin out of control say in the next 5 or 10 years.
I know you know the general math, but here is a concrete example. NMK-C a 3.9% perpetual ute preferred was issued long prior to 1970s. I didnt find 1970s data, but entire early 1980s, this $100 par issued languished in the $25-$30 range (and a bigger float as many were tendered in a 2002ish tender) from the pressure of double digit bond yields. It presently trades at well over $100 now.
Inflation is never transitory. The only transitory part is the rate of inflation. Eventually is drops back to 2 or 3 % but prices never go down they just rise at a slower rate.
It’s like gunning your car to 90 mph. You see a cop behind so you reduce acceleration and creep up to 92 mph. “But officer, powell said I was slowing down.”
Probably the scariest words ever heard by an economist…
“sold my 5 year old car for slightly more than I paid for it 2 years ago.”
Sold my Toyota matrix for ($3300) with 170K on it. Purchased used for $5500 with 42K.
Fed finally admitted that QE and asset purchases aren’t helping income inequality. Which most people already knew. But the fact that they admitted it may be paving the way for less of it. Massive rate hikes are unlikely, withdrawing liquidity may be their first tool of choice. Stocks drop without rate hikes, then then hike while re-animating.
Those massive MBS buys are severely distorting the housing market by juicing mortgage issuances.
What’s different this time around as opposed to the various fluctuations in rates we’ve had over the past 6-12 months is the significant yield curve flattening — particularly the 30-5 year spread. Market is thinking the Fed is going to raise rates sufficiently to contain inflation and get us back to anemic long term trend growth. Fiscal and labor policies aren’t going to change the multi-decade trends in place. Lacy Hunt worldview is being confirmed.
Yeah, “bonds yawn” is completely missing the picture here. The market is responding to a distant threat of a rate hike as a serious impediment to economic growth; i.e. even one or two rate hikes two years from now are seen as a substantial tightening of monetary policy. Thus, short-term rates are up while long-term rates are plunging. My view has been that we are stuck in a low rate environment indefinitely and the market is telling you right now that it shares that opinion (though subject to change, of course).
P.S. Many here were hyped up rising rates due to inflation a few months ago, but sure have gone quiet.
Actually, Landlord Investor, my take is that the market is not worried that the Fed is going to raise rates to contain inflation. It is that the Fed will raise rates to contain transitory inflation that didn’t need any tightening at all.
Sorry, but that implies the Fed will raise rates quite soon – if they are doing for transitory inflation. Plan B?
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