Markets Will Be Tested
By: Tim McPartland,
With Greece so very close to outright bankruptcy global markets will be tested in the days (or maybe it is a couple weeks) ahead. While the BK can be stalled we all know there is no way out—in our minds lets just get it over with. Just like QE all around the world this continual stalling of the inevitable only drags out the economic malaise.
After racing to 2.30% the 10 year treasury is now back in the 2.20% area as the economic numbers in the U.S. are tepid, at best. While we continue to position for higher interest rates one can’t really find any logic in that plan (but we are slowing going there anyway). The economy is likely as poor as it has been in a couple years and any upward movement in rates is likely to make the situation worse. One could make the case that rates should be lowered easier than the case that they should be raised, but the FED has backed themselves into a corner and they seem bound and determined to raise short rates.
As earlier written about we have purchased a position in Eagle Point Credit 7.75% term preferred (otc temp ticker:ECRPP). Being a closed end investment fund there is a level of safety in this issue (they must have 200% asset coverage), but we don’t want to hold this issue if the economy goes south hard. While the economy is softening a bunch we don’t think it will slow dramatically–if it does we will not hold this one through a recession.