So the Fed meeting is happening today and tomorrow morning and we are awaiting the announce on the 1/4% rate hike. Then for the big news–what Chair Yellen has to say after the meeting–will she sound hawkish on rates or will she give the typical dovish sounding drivel that would be the norm?
So here is how we think this will all play out. Obviously we believe that there will be a 1/4% hike announced Wednesday at 1 p.m. (CDT)–we think there is ZERO change of a larger hike (such as 1/2%). After the announcement Chair Yellen will have a press conference and will send a close to normal message but with a slightly more hawkish tone while sighting in particular the employment situation and the most recent inflation figures (such as todays PPI which was slightly hot at .3%). If we are correct in the above we don’t expect any giant over-reaction of the marketplace, although we wouldn’t be surprised to see the 10 year treasury trade up to 2.65%–NOR would we be surprised to see it trade down to 2.55%.
NOW if Yellen announces something such as a move to start reducing the Fed balance sheet by starting to sell holdings (such as mortgage securities) into the open market we could see an over-reaction. We think this is remote as this would be a double whammy and we don’t think with the government discontent in Washington DC that Yellen would want to rock the boat this much.
On Friday we will make a few moves (assuming markets are relatively calm). We will be making a couple of purchases. We are looking to add some more shares of Independence Realty Trust (NYSE:IRT) as well as a full position of the Two Harbors 8.125% Fixed to Floating Preferred (NYSE:TWO-A or OTC:TWHBP). We will also add a small position in Spark Energy 8.75% Fixed to Floating Preferred (NASDAQ:SPKEP or OTC:SKYQP). While we continue to be leery of holding perpetuals the FTF feature will help to buffer bumps in the road and the high yields make the risk/reward proposition fair.
We will be making some sales next week from some of the portfolios as we have had a number of concerns pop up and we will explaining these concerns when we write on the sales.