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Ugly, Ugly Day

Equities couldn’t make a stand at all today – each small rally brought more sellers out–I guess tough talk from Powell (although expected) put a little fear into folks.

Interest rates didn’t take a breather either–stuck at 4.48% all day long–it wasn’t helpful that 1st time unemployment claims were quite a bit fewer than expected.

I did weight in on a 5.70% CD (1 year) today–seems like these are going to go higher from here. The higher rates go the more competition will be for the individual investor money for certain.

My accounts were all RED today–no surprise, but the dollar value of the RED issues wasn’t too bad – given the level of treasury bills and CDs in the account the spanking is fairly mild.

So we will have to see if the market follows through tomorrow or not–my guess it will be a soft open and then bounces. We’ll see!

32 thoughts on “Ugly, Ugly Day”

  1. Well so much for not talking politics. Its amazing me that 5 billion has been spent in the names of ‘investment’ and Inflation Reduction’ and no one remembers the spending. NEWS FLASH you can’t outlaw inflation and spend money like drunken sailors and pretend someone else made you do it. The party in charge spent 2 trillion w/o a single vote from he other side. And then put John Podesta in charge of doling out the grift!! The audacity of reckless fiscal is one of the reasons our inflation’s headed to the moon!!…..Then on top of that you blame 50 rep for your out controllable reckless boondoggles.

    America has eaten he worlds lunch due to hard work and American ingenuity. Look at the top 100 corps in the world. We have like 85 of the 100!! We need to encourage growth not stifle it. Growing our GDP is the cure to many of our problems. Lets find common grounds that we can agree on and build together from the inside out.. God Bless America!

    1. Let’s look at 2022. Expenses and taxes are seen here: https://www.cbo.gov/publication/58888. Social security, Medicare, Medicaid, and unemployment benefits totaled $2.56 trillion. (see also https://oui.doleta.gov/unemploy/DataDashboard.asp). Payroll taxes were 1.5 trillion. The deficit was 1.4 trillion. Roughly 2/3 of the shortfall can be attributed to the difference between payroll taxes and the payouts they cover. The fixes are debatable, but to make real progress, this shortfall will need to be addressed.

      1. Excellent graphic. Add the overlays of declining $$ supply due to QT and reduced foreign buying.

        Easy to envision:
        1) Successive tranches of treasury and CD investments going in the red until maturity.
        2) Credit spreads widening
        3) Increased default rates
        4) Ongoing opportunity to lower cost basis/increase effective yield/increase income of high-quality preferred holdings

        1. Nothing is certain, Alpha, but the credit spreads are a bit confounding. Do you remember Dec. 2018 when credit spreads quickly widened, all while treasuries were dropping at the same time? In a matter of days preferreds dropped a couple of bucks because of this. It takes a noticeable price decrease just to move the spread up even a paltry 25-50 bps. And we dont even want to look at the credit spreads from 2008-09, ha.
          Credit spreads should widen if economy falters. I think in past 10 years we have been too accustomed to quick changes and reversals. This Fed tightening cycle is extremely drawn out and probably hasnt even felt partial impact yet. We have a dichotomy going on in the interest rate world. As I mentioned to an online friend consider me as an example. At present a general new car loan is around 6%, unsecured loan well into double digits, and mortgage loans 7.5%…..While my car loan is 0%, my unsecured loan is 5%, and my mortgage note is 2.75%. There are a lot of people out there like me that havent noticed a bit of change in what they are paying. While the newbees are slowly adding up and will continue. Now, I have the luxury of paying off all my loans easily if I want, but others who dont will feel the pinch if they have to get todays rates. And of course businesses are going to feel it soon with many debt issuances needing to be refinanced in a year or so. The increased interest rates will suck money out of the consumer driven economy…And hopefully into my increased safer income yields!

          1. Thanks to my GF (wife), Grid, we too have one of those 2.something mortgages as she advocated for it 2 years ago when we changed coasts. “If rates go lower, pay it off, if they go higher you’ve become the bank”. And I think I know things…

            Evidenced by those low credit spreads you referenced, I continue to be astounded by the market’s complacency with risk, though it does seem of late, a slow-motion train wreck of reckoning is underway.

            In preferred-land, the reckoning can be seen as missing dividends, late pay dividends, dividend cuts, spinoffs, adverse SOFR interpretations, sudden 10x daily volume sell-offs in an issue and other not-so-fun outcomes becoming more frequent as the gravitational force of normalized rates sets in. Not all, but near 100% of this activity is occurring in junk or unrated issues. As it stands now, despite the upfront teaser rate, the further one goes down the risk ladder, the lower the total return. It seems clear that when another cycle of long-enabled malinvestments have been taken to the wood shed, credit spreads will begin to normalize. Of course I’ll confess to never considering a hoodie, elephant shorts and flip-flops as an approved standard in the senate – so I know nothing.

            The Fed’s QT and rate trajectory has I think been a great opportunity for all of us to continue to nab a few opportunistic buys. We’ve had buying-lulls in recent months, but buying has picked up in the past few weeks as some prices have breached our basis in a few issues and we’ve been able to add at incredible prices.

            Best to all.

      2. Not to start an argument, but payroll taxes are supposed to cover medicare and social security. That is about $2B. Payroll tax still doesn’t cover that (so your point still holds), but not as dramatically.

        Medicaid is a welfare program funded from general revenue, as is most of unemployment (at the federal level – states impose an unemployment tax to support their programs). Also, in 2022, there as still a lot of federal “unemployment” money flowing out that was really COVID response being funded on an emergency basis.

        Also, IIRC – when I dug into social security spending (bunch of years ago), there was a LOT of disability money funneling through that is not really within the original scope of SS disability (like disability payments for disabled children, etc.). Those were added much later than the original SS program as a form of welfare program but were funded by SS payroll tax/trust fund because SS (once upon a time) had deep pockets. I haven’t dug into the data in recent history, but back then, if you carved out that non-employee related disability, the trust fund actually looked quite good and payroll taxes were more than sufficient.

        Again, I don’t know if this is still how it works, but it was once-upon-a-time.

        1. You forgot the school stipend. A friend of mine went to college and SS paid part of the tuition he told me as his parents were over 63-1/2 they didn’t get married and have their child until my friend’s father was in his early 40’s

        2. Private, I completely agree with you entitlements are out of control!

          And I’ll go one step further…as soon as I am am done with them I think changes should be made.

  2. Wow, this week has lowered my portfolio by $600.
    It may not be much for some of you, but dang it, I’m only 10% in Preferred issues. Heck, even some CD’s are dripping in value.
    I guess when the fog clears, it will have been a Fed raise by proxies.
    I will still make new highs when the end of month interest payments arrive.
    I did pick up DCOMP near $15 today. But for the most part, I watch and wait.
    I do scan comments, but haven’t yet found a persuasive reason to buy more Preferred issues.

    1. Newman, think of it this way….You dont want to see your CDs rising above purchase price. In fact if you like extra safe yield, you would rather be praying for a “loss” right now. Because if you maintain a “loss” until maturity that means you get to re-up a new CD at even higher yields! While if you are showing a “gain” on your CD, its just a phantom gain that is telling you that your next CD will have a lower yield. Who wants that?

  3. Same here – relatively small redness of 0.2% for me across all portfolios. I have a ton of laddered treasuries and other federal bonds, preferreds, baby bonds, etc. I am not worried about anything at this point. Some treasuries maturing next week that I’ll probably roll those funds outward up to a year or so.

    My retirement date is Jan 12. I love my NASA job but I’m done with the gov’t BS that I have to deal with, esp. the shutdown(s). I’ll get paid but it is really disruptive to our missions. Meh. Maybe we’ll stay shutdown till Jan 12th. I would love/hope NASA to spin-off as a commercial entity – the government role just impedes its mission/progress.

  4. TLT is starting to get interesting at $90. I would start biting there in the $85 area by probably selling the $85 strike puts a few months out. We shall see.

  5. Yes it’s crazy for the government to shut down or threaten to “default” with only $32T of debt. But on a basis that is totally bipartisan, we don’t have a rational budget, we don’t have a rational budgetary process and our two parties are still focusing on tax cuts and more entitlements.

    What is going to be the final crisis that pops the bubble in Washington DC? I suspect it will be the sovereign credit markets that finally refuse to buy more US debt. What will our national debt amount to then?$50, $60T? It makes more sense to default at $32T than $50 or $60T?

    Given the overall bipartisan madness, I cannot and will not criticize some in Congress for trying to stop the system. Yes it’s going to hurt but not nearly as much as for our children and grandchildren later if we don’t take radical action. Right now, our deficit is almost 50% of our tax revenue.

    1. > Given the overall bipartisan madness, I cannot and will not criticize some in Congress for trying to stop the system.

      I will. There’s a big difference between working on the car and torching it.

        1. None radical means have done very little to this point. I welcome some radicals to try something. I realize it could be damaging, but so is status quo.

      1. So we kick the can down the road as usual until the credit markets do for us what we cannot do ourselves? I am no radical but I know this fiscal insanity can’t continue. Without finding a way to educate the public of the pending crisis, we will continue to kick the can with continuous continuing resolutions. $50 T debt here we come.

      2. > Given the overall bipartisan madness, I cannot and will not criticize some in Congress for trying to stop the system.

        > I will. There’s a big difference between working on the car and torching it.

        At this point the garage the car is kept in definitely needs torched so the car can be saved. There is nothing radical about trying to restore fiscal sanity and regular order to the process. I applaud the small group trying to fix the system, even if it means shutting down the government temporarily. The problem is the uniparty (aka 98% of Congress) don’t want the system fixed. They are happy to just pass continuing resolution after continuing resolution, ignore the real budgeting process, and kick the can down the road

        They are the radicals – pushing the country deeper and deeper in debt. The small group trying to restore sanity and fix the process are the heroes

        1. The better analogy is one of addiction. The uni party needs an intervention to stop the compulsive spending. Cold Turkey or a methodone program is required.

          1. Potter….perhaps “self- preservation” fits the situation. With entitlements by far the biggest source of deficits, no politician wants to step on the third rail. Haggling over smaller stuff is more theater than substance. Being a geezer, I receive both, but realize that they are at the heart of the problem.

    2. The US has the strongest economy in the world and is arguably the greatest country that has ever existed. I don’t think we need a radical or “burn it all down and start over” approach.

      It’s boring, but I favor incremental and conventional approaches.

      1. That is certainly the attitude which got us $33 trillion in debt, Landlord.

        I would put forth the proposition that continuing to spend ourselves into oblivion is far more radical than shutting things down until the government can start behaving more responsibly.

    3. Potter:

      Actually $33 Trillion of debt now. I am certain most dedicated III’ers have viewed this website:


      A year ago total interest costs were $400 Billion/year. Now they are running at $700+ Billion and may approach $1+ Trillion by the end of next year.

      Once interest costs start eating up 20-25% of Federal revenues, things could get real ugly. It goes without saying that it is going to be very interesting to see how this plays out in 2024 and beyond.

    4. IMHO, the biggest problem is that most people in Washington don’t think we actually have an underlying problem. They view this just as “politics as usual”. I don’t think it is

      Its come up a couple of times recently (I think), most recently by 2WhiteRoses just a couple of days ago:

      https://www.investopedia.com/modern-monetary-theory-mmt-4588060 “Put simply, modern monetary theory decrees that [monetarily sovereign countries] do not rely on taxes or borrowing for spending since they can print as much money as they need and are the monopoly issuers of the currency. Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of a rising national debt.”

      When enough people in Congress (and the Fed, Treasury, etc.) believe such nonsense (and many do), we get insane levels of borrow-and-spend like we see today. Problem with MMT is that it will work until it doesn’t – at which time the economy will just lock up under the mountain of debt. Then what will we do? The fed has been reducing its balance sheet a little, so it can absorb some of the debt, but probably not trillions.

      Countries with massive debt have historically fallen into an inflation spiral. It has happened before. When I was in grad school, because someone thought I spoke the right languages, I was asked to catalog a huge collection of private papers that had been donated by the estate of a man who had been somewhat famous (in European economics and government) about 100 years ago. He helped write the constitutions for the “Weimar Republic” era in Germany and the constitution of the then-newly created Czechoslovakia among other things. It was a fascinating experience to read how they created a government buried in debt (war reparations), and how the ensuing hyperinflation destroyed them (and opened the way for Hitler to rise to power – although they didn’t see that coming in the 1920s). They didn’t have a fancy name like MMP to hide behind, but they had mountains of debt that couldn’t be paid without inflating it away.

      I honestly fear we will end up in a similar situation where we will have so much debt that inflation will not go away. The fed can choke business by raising rates, but there isn’t enough business to choke to offset the tsunami of money being poured into the economy by the government. As I (and others) have said before, this is an oversupply problem, and all the fed can do is choke off a small segment of demand.

      It really scares me when people (like many economists today) say about inflation that “It won’t (or can’t) happen to us. We know what they did wrong (in the past), so it will be different this time because XYZ.” People were saying similar things in the 1920s. Didn’t work then, likely won’t work now.

    5. Still the best ‘crackhouse’ in the world.

      I would never allow MAGA’s with their anarchy irrational viewpoints control my children’s piggy bank let alone a sovereign currency!

  6. S&P 500 ~~~ just hit a key support level at 4330 to the exact point, will be interesting to see if it can hold, & if it cannot, what happens next!

  7. As the countdown to the end of the month and failure to vote for a temporary extension of spending on the budget the uncertainty is going to increase and investors are going to stay on the sidelines or panic and sell. If the market doesn’t see results then expect selling to increase. If a stop gap measure does pass the market will have a short lived rally.
    Place your bets ladies and gentlemen!

    1. If a government shutdown happens, the Fed will have less precise economic data for their next meeting.

      1. As if “precise market data” has anything to do with their actions at those meetings…. They will do whatever they think fits the political situation, regardless of a gov. shutdown.

        I am dusting off the “they-won’t-let-me-shoot-the-idiot-politicians” line of credit at the “Bank of Dad” for my son who works for the US military.

        I don’t like him dipping into his savings/investments for this short term mess. He won’t let me give him money (stubborn kid – guess he has to be to be married to my daughter), but he will borrow from that line of credit if federal payroll stops again. Seems to happen about every 5 years…..

        Oh, and congressional salaries keep getting paid during shutdowns.

        I have an idea – how about a law that says that if there is a shutdown, Congress has failed at one of its most basic duties. So, all sitting senators and congresspeople are deemed to have resigned from office as of the date of the next election and are barred from serving in an elected or appointed position ever again. We then hold an election for a whole new congress who can get the job done. Bet we would never have another shutdown.
        /End Rant

        [Hope that isn’t too political. It’s just an acknowledgement that we all somehow manage to send a bunch of idiots to Washington year after year – regardless of who is in the majority]

        1. Private,
          I’ll pass you my get out of jail free card. Spreading the blame equally to my way of thinking isn’t being political.
          Tell your son-in-law thank you for his service to our country.

    2. Not really a bet, don’t listen to skeptics. The House Reps, IF necessary will have a floor vote and McCarthy will to cast off the 50 MAGA’s like he should of done when he became House leader.

      This will all be over before it starts.

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