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That’s Done – What Now?

My suspicion on the rate hike and news conference were on the mark–but the talking heads on CNBC did have me thinking that the FOMC had threaded the needle when their initial ‘statement’ was released–for a moment I felt some relief, but realistically I knew better.

It didn’t take long for Jay Powell to slap down the notion of a ‘pause’ in interest rate hikes and for markets to tumble hard. The tumble continues this morning with the S&P500 futures off 2/3 %. More importantly the 10 year treasury is way up at 4.19%. from a 4.06% close yesterday.

So what is ahead? Data dependent–starting tomorrow with the employment report. Then the CPI next Thursday. We need to see true softness in numbers–not have the talking heads interpret the numbers with bias toward ‘talking their book’. In the mean time rates are moving higher and I will likely give back the gains from last week. So my ‘shopping’ continues–buying the highest quality issues with current yield at 6.5% and above–many times considering YTM as there are many baby bonds and term preferred’s with YTM’s at 10% and above.

13 thoughts on “That’s Done – What Now?”

  1. A Commentary by Harley Bassman

    Here I trace the MBS pipeline from the loan application to its purchase by a Mutual Fund. I then detail the MBS valuation process. The timeliness here is that MBS have only been this cheap during times of significant financial crisis (2008/09 and 2020) – which is not the case currently.

    In preview, I offer why I am going to “call the bottom” for MBS relative to USTs, and their levered cousin the Mortgage REIT.

    Remember that sizing is more important than entry level.

    You can find me on Twitter: @ConvexityMaven

    Your questions and comments are always welcome at: harley@bassman.net


  2. Things are actually working as designed–it’s just no one can say it b/c, as someone mentioned, a market rally and too much “exuberance” might tip the apple cart.

    Core GDP has been slowly coming down. Other factors, like rent/housing and the strong dollar’s effect on trade deficits, have a one- to two-year lag before results are seen. But the effects are coming. Headline news can’t say “keep calm, wait two years.” That doesn’t sell pharma ads.

    Likewise, the standard jobs numbers don’t tell the story. Yet. But look deeper and the job market is calming down. People see they are less likely to be able to hop to another job with more pay. So, their spending will level off.

    It’s too bad we have this Fed-speak dance instead of just telling it straight up. Probably because most people can’t absorb details. And they want instant action, same-day delivery. Patience is no longer a virtue.

  3. After contemplating what I heard yesterday, I realized that in 2023 the national conservation will flip from Inflation to Recession. The Recession conversation will be noisy, heated, fractured, and political. It makes me think of Days of Thunder when Harry shouts to Cole as he approaches a huge smoke cloud caused by a collision, with burning stock chars flying everywhere. You can drive through it. I know it. I know it in my heart.

    Tim Thanks you! This site is the best! Cheers! Windy

    1. FYI…Also got some CTBB @ $16.78, and CHSCN @ $24.78. Thanks for the tips! I wish I had gotten more MBINM when released at $25. I’m watching IG financials (the MS, Citi, etc.) for 7%+ QDI.

      Nonpreferreds: When do you start getting GOOG?

  4. 3 realities in my book; 1) there will be no Pivot 2) the US$ will continue its strong path higher as JP will not support the yen and the EU is a mess/euro weakness continues (as well as pound) 3) China will not waiver on zero covid policy (its healthcare system cannot handle high case counts.
    I sold 3 REITs I had yesterday before the announcement to grab some more pfds w covered divs over 8% but not yet, freeing up a chunk in RothIRA. One at a small loss, one breakeven and one w a small gain. Tightening up what I hold in REITs to quality but again not yet. Anyway that is what I see.

    Now that the Nov FED word is out, we can expect the nauseating FED governor speak till the next quiet period to further confuse us all.
    Back to Tim’s wonderful ‘pfd gainers/losers’ spread to seek out the new watch list additions!! Thanx again Tim for this great resource. Bea

  5. Tim, thank you for all you great insights and steady analysis. My thoughts are that this economy, the national debt, and these economic times are not at all like the times of Paul Volker. Our federal reserve needs to think out of the box. Old time measures will not solve this problem and their continuance will ruin our financial system as we know it. This is a global economy and needs global guidance. So much for my 2 cents.

    1. JP may well – pause soon – I think he was pissed yesterday that the markets at first thought he was a lackey for them so he put the hammer down.

  6. Tim – thanks for the perspective on data-driven future moves by the Fed. This is a day late but I was struck by a paragraph in the WSJ yesterday before the announcement:

    Even as Wall Street prepares to parse Chairman Jerome Powell’s statements for signs of whether the central bank might slow interest-rate increases at its next meeting in December, derivatives markets show the federal-funds rate sitting at around 3.5% for the long run. That is a full percentage point higher than the central bank’s own latest forecast. Those wagers have crept higher throughout most of the year and are now nearing levels not seen since the 2013 bond-market rout known as the “Taper Tantrum.”


    I remember the taper tantrum as one of those rare opportunities for income investors that come around every so often. We’ll see, I guess!

    1. The fed can not be too dovish because the market will rally and they don’t want to undo what they have already done. However they recognize the destruction that is being caused by the $ so they will have to back off pretty soon ( early 2023). They also recognize that when measuring inflation you are looking backwards in time, so you have to slow down to see what effect you have had so far otherwise you will overshoot.

      1. He said that he would prefer to over shoot rather than under- to avoid inflation as usual being ingrained as a new normal.

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