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This Goldilocks Economy Could Last for Months

It’s a typical slow time of year economically speaking with the holidays and days surrounding the holidays—stock and bond prices are relatively quiet with stocks creeping slowly higher and bond yields slowly drifting lower. I love these drifting markets, as I collect dividends and interest, but just the same I worry.

I looked back 10 years at an article I wrote and it is amazing that I had many of the same worries now that I had then. It was just over 10 years ago that I launched a new ‘version’ of the ‘Yield Hunter’ website and on my wall in my office I have a permanent metal version of that day – that home page. I wrote about the Federal government debt ceiling–as congress was fighting over the debt ceiling–sound familiar? I wrote–‘it is just a matter of time before we become another Greece’. I also wrote that ‘foreign and domestic bond buyers are getting damned tired of actions of the U.S. Government and the ever growing welfare state’. Back then the website had no commenting and obviously I took the liberty to be more political–which we don’t allow here, but the point is that the exact items I was writing about back then I am writing and worrying about today–guess it is my job–worrying.

Regardless as we observe markets today it would seem to me that we can see maybe 3 months out – economically speaking. Obviously there are ‘black swans’ lurking out there, but of the items we can see I don’t see huge changes in the next 3 months. Energy prices remain reasonable, employment remains strong, consumer prices (CPI) are getting under control and retail sales remain strong. Seems to me these could spell a market (stocks and bonds) fairly well in control–a drift lower in interest rates and a drift higher in stocks. I am hoping the Fed will NOT lower rates until after March–with what we know now that would seem premature. This would allow income investors to buy some CDs and bonds if they chose–with reasonable returns and to collect dividends at a fairly high current yield–Goldilocks.

I mentioned that yesterday I sold a chunk of my Bridgewater Bancorp (BWB) 5.875% non cumulative preferred–could not resist taking a profit of over 20% in just over 1 month. I continue to hold this issue as I sold just 1/3 of my position. At the same time I bought more of the XAI Floating Rate Term Trust (XFLT-A) 6.50% term preferred which was presenting a yield to maturity (mandatory redemption in March 2026) of over 8.25%. I am more than full up with this issue–can’t buy more. I updated my ‘laundry list of holdings’.

There is no scheduled economic news this morning. The 10 year treasury yield is down a couple basis points at 3.86% and the S&P500 futures are up the tiniest of amounts. I will be finishing painting my office today–these markets are like watching paint dry–and I will literally be watching paint dry in my office. There is nothing more satisfying than a fresh coat of paint on a wall–and nothing cheaper that one can do.

14 thoughts on “This Goldilocks Economy Could Last for Months”

  1. As earnings apporach, I am watching corporate earnings forward guidance…too hot, too cold or just right? I will be watching consumer goods companies, as consumers spending is 70% of the ecomomy. Consumer discretionaries, like Nike, will give the best insights, which IMO will set the markets tone for the economy and markets.

    Cheers! Windy

    1. Tomastv—I owned a tiny amount for 2 hours and sold it for a 4 cent loss. Folks on here made me bail out quick. I will add to the laundry list this p.m.

  2. Gold is telling us all we need to know about the ‘goldi’locks economy and state of the world. Feb24 contract approaches 2100. Go gold go…miners free cash flow in 2024 will be strong w price up and costs level to down. But I love my conservative holdings just as much as my mining portfolio the ballast in barbelling capital preservation in retirement. I also trimmed the BWB pfd, did some prelim cap gains analysis and ‘found’ room to book the short term gain.
    I think we get more chances in 2024, not convinced w <1yr rates stubborn that yield euphoria is justified. GS calling for 2yrs of rate cuts in FED Funds to 3-3.25% area..and saying employment, income, GDP will be strong??
    Anyway I am up to 50.2% cash in SPAXX for all 3 a/c w a lot of trimming, boy that cash rate makes it easier/better to be more conservative and to book gains to capital. The Buffett and McPartland rule #1 !! Everyone for years worrying about who is going to buy our debt, well Americans are in droves in their mmkt a/c's and various ETFs chock full of money.

    was hoping for some bargains this week in yr end portfolio adjustment/ tax sellers but doesnt seem to be happening. Oh well, back to the grind/hot/watchlists! Bea

    1. In possibly relevant news, the ETF FXF that tracks the CHF currency went up by over $1.10 a share today, which I don’t remember ever seeing.

      So I checked the data since 12/27/2018, and that happened only 3X previously in the last 5 years.
      March 27, 2020 (pandemic)
      November 11, 2022
      January 6, 2023

      Everybody touts the CHF as the only non-fiat reserve currency, but it could really never take the place of the Euro or Dollar as a reserve currency because CHF currency volumes are a rounding error in comparison to the EUR/USD volumes.

    2. Bea, I held 3 micro gold miners in one account. One in Australia and one in New Guinea. Sold those two at break even. Basically with no dividend was dead money. The one in Labrador I am still holding. Looked at one in NV and decided 3 losers was enough! LOL
      The one biotech I hold is up 50% in one month in 3 accounts.

  3. March 11 is the end date for the Fed’s Bank Term Funding Program which was initiated in response to the March 2023 banking crisis and has been the backstop preventing more bank failures. We’ll find out then which banks have been swimming naked all year. This article in the Wall Street Journal is not encouraging…
    …and neither is this one.

    1. Citadel – if memory serves me right most of the banks reveal how much of the facility they have taken advantage of. Likely good to go through bank holdings 10-q and 10-k’s and find out what that number is.

    2. Citadel:

      Here is the story on 1640 Sepulveda Blvd in West Los Angeles….reportedly sold at $44.7M recently after the seller paid $92.5M in 2018.

      That takes “taking a bath on that one” to a whole new level. Expect to see a whole lot more of these transactions in 2024 and beyond:

      “A Los Angeles office building located near Century City and Beverly Hills sold for about 52% less than its price five years ago.

      Harbor Associates and F&F Capital Group bought the five-story property at 1640 Sepulveda Blvd. for about $44.7 million, according to a statement Tuesday. The building last sold in 2018 for $92.5 million.

      It’s the latest sale of an LA office building in a market that’s been pressured by the rise of remote work and financing challenges brought about by soaring interest rates. Recently, the Aon Center in downtown LA sold for $147.8 million, about 45% less than its previous purchase price in 2014.

      The building at 1640 Sepulveda Blvd. was constructed in 1987 and has had more than $11 million in renovations, including upgrades to tenant spaces as well as a redesigned lobby. It was 80% occupied at the time of the deal’s closing, according to the statement.

      “After several years of kicking the can down the road, we are now beginning to see distress hit the market,” Harbor Principal Joon Choi said in the statement. “There are still compelling opportunities to find the hidden gems at a deep discount to replacement.”

    3. From what I have read is that the bank term funding program is now a freebie for many banks who borrow heavily and can make money from a spread. So it is not exactly accurate of what is going on if you look at the total amount borrowed. On top of that rates have fallen dramatically. HTM and avail for sale securities obviously went up in value.

  4. I’m wondering how Congress resolves the ongoing budget battle and the other items on their agenda. They have ten days to do something before January 19 and then February 2. This could definitely upset Goldilocks and the three bears and affect our portfolios! Maybe it falls under the black swan category.

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