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Weekly Kickoff

Well the big question in my mind is where will interest rates go this week? Maybe they will be quiet all week until Friday when the PCE (personal consumption expenditures) number is released–if we see a number which is off the forecast we could see an explosion higher–or a giant sized drop. A hot number will set off discussion on a rate HIKE, which I would hate to see.

Last week the S&P500 fell by 3%, closing under 5000 for the 1st time since February 13th. The index remains just 5% off an all time high so really not too much of a pullback to this point and certainly we could see a continuation of this setback–just hoping that losses are modest. Like interest rates it is not just the direction of equity movements, but the speed that they move that hurts income investors. Who know what will happen? I can’t forecast equity movements that is for sure.

Interest rates ended the week at 4.62% (the 10 year treasury) which was up 12 basis points from the close the previous Friday and the highest weekly close since the week ending November 10th, 2023. The Fed ‘yakkers’ are now almost all uniformly hawkish on rates and keep pounding home the inflation goals and even hinting that the Fed will raise the Fed Funds rates further if warranted. This week the big economic number, of course, is the personal consumption expenditures (PCE) index on Friday, but we do get a 1st look at Q1 GDP on Thursday.

The Federal Reserve balance sheet fell by $33 billion last week–resuming the normal $95/billion in monthly runoff after a 1 week pause.

The average $25/share preferred stock an/or baby bond fell in price by 20 cents with investment grade issues rising 6 cents, banking issues fell 21 cents, CEF preferreds fell 12 cents, mREITs off 25 cents and shipping issues fell 8 cents. Very much a mixed bag for the week, but certainly in a downward trend.

Last week we had 1 new income issue priced as MFA Financial (MFA) priced a new baby bond with a 9% coupon. It has been a while since we had an issue price at 9%–and with rates trending higher it was only a matter of time. It will be interesting to see if we see other new issues pricing this high.

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19 thoughts on “Weekly Kickoff”

  1. Ca has over 5% unemployment w/$ 73B budget deficit but you would not know it, LA-Ventura has many for lease signs but new commercial construction projects still going up? Everything is buy-buy-buy! Crazy 🤪!!!

  2. Yesterday, the missus and I went to shop for a new Toaster Oven.
    We drove a total of 14 miles round trip and we counted over 100 “for lease” signs, mainly in malls.
    Is this just Ft Lauderdale, or is your city plagued by this as well?
    I have been lulled to sleep with CD’s and haven’t been out much during tax Season, so it was a eye opener for me.
    I won’t forecast doom and gloom, but tread carefully guys/gals.
    (Sleepless or Leaseless in Ft Lauderdale?)

    1. Anecdotal of course, but in contrast to you our area (Northern Va suburbs of DC) seems to be booming with activity. Strip malls and shopping malls seem to me to be packed. More than usual these days. This area is always different from rest of the country due to the very comfortable living federal workforce (of which I was one for 30 yrs).

      1. Pig Pile
        That’s good to hear.
        Maybe, being close to the Washington helps.
        In June, I will be in NYC and report from there.

        1. I don’t think there is any doubt that being near DC helps. That’s probably one of the highest concentrations of high- earners on the planet. And some of them no regard for how much of your money they spend. And let’s not forget the lobbyists flooding the area with cash.

      2. Newman- feast or famine in SW PA/Pittsburgh area; you have odds and ends of single use buildings shut (RiteAids) a lot Downtown, city proper non-downtown nearly nothing for rent; GAP closed a store, leased up immediately in an upscale neighborhood near Pitt/UPMC; nothing in my neighborhood 1mi long strip of storefronts two old banks that had closed are leased now one is ofc other is some kind of ‘gaming’ place for teens; three major malls booming, others struggling or shut.
        I guess as they say ‘location’ in r/e. Still seeing marquee boards that retailers/grocers/Subway/ plumbers etc signs saying ‘Help Wanted’ .. go out 2x week to limit time away from mom in caregiving and parking is at a premium in my strip w grocer and the mentioned strip in my Pgh neighborhood. The area near the stadiums, which includes kids museum, Warhol museum and others is booming as is ‘uptown’ which has seen massive apt/condo development so related retail/restaurant/ clubs fill storefronts. UPMC/Highmark (bc/bs) are building everywhere including a new Physician School and medical office buildings.
        2 grocery locations closed quickly filled w Aldi’s. So overall, positive still imo. (my trips yrs ago to FL seemed like there were always a lot of available leases but each trip showed lots of new biz’s too..maybe just turnover? locally again small biz complaining about lease renewal rent increases a lot with them squeezed on labor, input costs, ins, maybe the lease renewal rates are causing closures, just a thought. ) The ‘Burgh’ has more than recovered from the nasty Rust Belt mess. Bea

      3. FWIW, government is the only truly “recession proof” sector. It never lays anyone off, and it is usually adding jobs (directly, and through contractors, etc.).

        We owned a couple of houses in the DC suburbs over the years, and a couple of offices on/near K street. Never lost a penny on houses, and landlords seemed to fill our commercial spaces within a few weeks (once we actually got paid to move out early because next tenant wanted in quickly). Admittedly, haven’t been in that market for years, but my wife has a lot of friends there and it seems to still be a booming place.

        1. Silicon valley is awash in vacant space, both office and retail – but you see a lot of “build-in” where they put more retail buildings into the parking lots of existing properties. Also seeing a lot of garbage quality “low income” housing going in that is starting to have problems before they are even fully occupied (b/c of poor quality construction, IMHO)

          Funny thing – I helped a startup lease/fitup a space about 7 years ago and they vacated it about 18 months ago (when they got acquired). still vacant. Another startup I started helping recently is looking at the same space – for half the price and still nicely fit up. Landlord is bending over backwards to get a tenant.

    2. Live in the Research Triangle area of North Carolina. The economy is booming here. There’s a few for lease signs, but not many.

      1. Downtown Durham has a number of vacant commercial buildings built over the last few years that have never had a tenant. I am beginning to see a few more “for sale” signs on houses that aren’t moving too quickly. Home prices, in general, seem to be somewhat inflated.

        1. Charlotte NC here. Every patch of land is being cleared and large apartment complexes are going up. Literally I can count 6 apartments complexes or townhome complexes going up with 5 miles of my subdivision. A friend listed there house in Harrisburg NC and it sold at the open house for the asking price of $649k. My daughters boyfriend parents listed their house on the lake in Sherrills Ford NC for 1.375 million and it sold in 48 hrs.

          1. I do not know how an “average Joe” getting started can buy a house today. I have never lived in a high cost area, but back in the day generally it was don’t buy a house more than 2X annual income. That provided a lot of opportunities for most people when I was first looking around here. That wont work most places today, unless one is a very high income family, or like buying a junker of a house.
            Cheapest place I ever lived in was right out of college. In a Senior Citizen duplex complex. I was 21 years old, lol. They didnt have enough Seniors to fill them all so they trusted me to not be a hell raiser and pay them $100 a month to stay in one. And whenever the Feds came by to audit and survey the properties they would give me advance warning to get the hell out of there until they were gone.

  3. My guess is there will need to be another hike this year. Inflation is no where near ‘under control’. Maybe that is the point? and there will not be any more hikes. I hedge in all directions possible, which makes for lower returns perhaps, but better sleep.

    1. There are a lot of Washington reasons to not raise rates. The politics of rates should remain suspect. Fair enough. But what good is raising rates going to do? Until recently, the Fed has been easing financial conditions by funding its reverse repo’s and accommodating the exploding deficit. What good is another 25 points do that the first 500 haven’t done? I would gladly trade a 25 bps raise for a 3-6 month vow of Fed silence or an acknowledgment by any significant politician that our spending is unsustainable?

  4. Not sure about existing home sales, which vary around the country. I had heard sales of new homes have increased even with higher borrowing rates and that builders are still moving forward with plans to build new construction. I had expected with the spring cycle that this would happen. Just need to see if this stalls out if rates stall out or go higher.

  5. Some air is also coming out of the demand for EV’s as well and that is hitting TSLA. The Mag 7 is a huge part of the ‘market’ indicies.

  6. Air is starting to come out of the AI bubble and it’s affecting tech big time. NVDA is a big part of the Mag 7 and indices so, pressure on it will become enhanced pressure on the major markets it seems…going to be interesting this week, for sure!

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