Interest Rates Continue at Low Levels
By: Tim McPartland,
So the FED has ended the latest QE program and there has been little to no reaction from interest rates. No giant surprise here–QE didn’t do much to begin with so no real reason why ending it would cause a big uproar. Of course when the end of QE was hinted at anytime in the last 18 months equity markets went negatively nuts–of course it was all silliness. Why would rates jump when no where in Asia can you get a return of more than 52 basis points for a 10 year government bond? You can garner a ‘huge’ 2.19% for a U.K. 10 year bond, 2.1% in Spain or 81 basis points in Germany. Let’s face it the U.S. government bonds are the best in the world (and we aren’t saying they are great–just the best).
We noted earlier today that the talking heads on CNBC acted puzzled today when announced retail sales were pretty soft–how could that be with low gasoline prices? Maybe those folks most affected are simply not spending–or maybe they are paying the bills that count (like the heat and electricity bill)–it doesn’t matter – they aren’t spending and there is no reason to believe that any big change is ahead. The spector of another do nothing governement, in and of itself, doen’t exactly inspire confidence. Sales gains at retail stores of 2-3.5% per year are likely to continue for the foreseeable future–what is going to change this situation? We don’t have any great revelation as to a ‘fix’.
We also note that mortgage applications are down–re-fi’s sharply and purchase applications just a bit. Record low mortgage interest rates and nobody is ‘biting’. It is interesting to note that in rural America the ‘haves’ are building new houses, while the ‘have nots’ have to be content to sit tight. Those in the lower end of the income sector are likely still underwater with their house. Values in some segments of the lower end remain 10-30% under the last peak–the same peak where those in the lower end all re-fi’ed. Additionally in small town America almost all of the loans being made are by FHA and USDA loan programs with little to nothing down–can you spell CRISIS! Does anyone really think the FED is going to raise interest rates anytime soon–we think not.
Of course all of this is contrary to the employment numbers and the unemployment rate which would appear to show things are just great–but in most rural areas of this country things simply are not great. We do think there will be a time when employment of higher paying jobs gets some traction–or the lack of workers willing to work for $8/hr forces rates higher–we just don’t think it is coming anytime soon to most of the country. We do note that in the Minneapolis/St Paul area (and on the metro fringes) wages are being forced up (and I mean FORCED–no one pays more than they have to pay). Very locally there simply aren’t people willing to work for $15/hr. But when you go out to the ‘country’ folks are just ‘getting by’.
OK–enough rambling–I could go on forever.
We sold the Annally Capital Management 7.625% (NLY-C) preferred from the model today. We had a reasonable gain and it was among the lowest current yield perpetual preferred we owned. We credited the proceeds to cash. We are looking to buy some of the Star Bulk Carriers 8% senior notes (ticker:SBLKL), but we are waiting a day or 2 to get the feel of the trading price. The issue is trading at $24.50 today.