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Where Do We Go From Here?

So we have had almost 2 months where interest rates have been trending higher—the last time we had the 10 year treasury under 4% was back on 2/2/2024—from there it has been a constant push higher. During that time frame economic news has not been friendly to rates as jobs have held up well, retail sales have grown at a rate above expectations and inflation numbers have held at or even above expectations.

The Fed continues to hint at rate cuts—which in my opinion was a major mistake. It makes no sense to promise (or near promise) rate cuts without seeing the ‘data’—last I knew they claimed to be ‘data dependent’ which obviously they can’t be if they are promising rate cuts somewhere in the months ahead.

As always we, as investors, have to use our thinking–what am I seeing and what logical conclusion does my thinking lead me to relative to investing?

So now, I see no reason for the Fed to cut rates–the data taken as a whole does not warrant a cut. This morning we got a housing starts number that came in soft–down 14% month over month which translates into a shortfall of over 200,000 units. While this is a soft number it moves a lot from month to month and 1 month doesn’t make a trend.

We have seen quality, low coupon, perpetual preferreds, and very long-dated maturity (out 30 or 40 years) baby bonds move sharply lower as rates have shot higher. Does one buy? It seems logical to me that with competitive rates in the money markets, CDs, and short maturity treasuries at 5% or higher that it makes little sense to be a buyer–but on the other hand if one is an investor looking for solid income (less concerned with capital levels) maybe it is a good time to buy–at least some nibbling. So everyone is different–every single one of us.

I am looking only at positions I currently hold for any possible small nibbles—as shown on my laundry list of holdings. I am looking for safety today–so will possibly take a nibble or two on a CEF preferred. I would consider a term preferred at the right price–although I am loaded pretty heavily with term preferred already. We’ll see what the day holds (or maybe a week)–not desperate to do anything–but would take a nibble on a perceived bargain.

7 thoughts on “Where Do We Go From Here?”

  1. Super-core inflation is continuing to hold at a high rate. Powell has said we have not made progress against inflation the entire year. May rate cut is now off the table.

    Higher for longer. But has that worked? I will leave it to the reader to decide. Let’s see, inflation stubborn and neutral is not working. I am not in the prediction business with the markets but how long before the fed speakers begin to seriously caution that they may have to do more rate hikes?

  2. Interesting comments from Almost Daily Grant’s today. The more longer term rates go up, the more stocks advance? Wow.

    Now and Then
    The more things stay the same, the more they change: 10-year Treasury yields reached 4.66% in late morning Monday, up 78 basis points so far this year to mark the highest benchmark borrowing costs since Nov. 2.

    Over that sub six-month stretch, the S&P 500 has churned out an 18% return, leaving the broad gauge perched at 26 times trailing 12-month earnings per share, FactSet finds, compared to 21 times in early November. Similarly, the index now changes hands at 20.6 times forward earnings, up from 17.5 last fall.

    1. Dollar losing value means the absolute market level rises but is not worth as much as it was yesterday. 100,000 DOW 10 years from now might be equivalent to today’s 40,000.

  3. Tim.. the last dip, we cleaned up,, hopefully this time Too….buying.. A- rated Bargains.. 7% and up… Georges

  4. I’m just trying to stay patient, liquid, diversified…. and patient. Patience largely because we haven’t seen credit spreads move yet. I know I can’t time equities or predict interest rates, but I have had success timing credit. When HY OAS spreads get back above 5.5, I’ll be really interested. Until then, cash is a valuable option that pays me 5+%.

    I have been scooping up EICC because I like the 5yr term @ 8% (and I think it’s single A risk for single B spread). I’m also paying attention to AHH-A, which is now above 8%. If it falls below $20, I’ll probably add to it. I still have their comments in 23 about going into the market and buying and retiring the preferreds in May 24 in my brain. May not happen, but at least I know there’s a desire on their part to think about it.

      1. AHH, just renegotiated a lease with WeWork at their Durham office building. WeWork had been in trouble so I don’t know what the terms of the lease might be. Similar to BFS, they have a construction division that builds their own buildings.
        I think they might do construction work for other companies to keep busy.
        Perhaps others here have more insight.

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