monetary policy
“By all means, let’s be open-minded, but not so open-minded that our brains drop out.”
The Fed Won’t Cut Rates This Year. Most economists think they should. (Of course, they do! Most of them work for the government or on Wall Street.) But let’s face it, as calculated by the government, inflation for the average household is up 25% since it started rising in 2021. However, for most households, it feels much higher. The point is that inflation is not going to go down. The Fed doesn’t even want it to! Core PCE is rising at 3.5%, and it’s expected to rise to 4% by the election. The Fed’s stated target is +2%; inflation would have to be negative for a prolonged period to bring any relief to the average household.
“By all means, let’s be open-minded, but not so open-minded that our brains drop out.” Read More »
“There is an inevitable divergence, attributed to the imperfections of the human mind, between the world as it is and the world as men perceive it.”
Stimulus remains ample, and Mr. Powell was more dovish than even the most strident risk asset bulls anticipated. Government activism in the economy and capital market and economy remain and are accelerating.
The performance of the U.S. equity and credit markets is excellent, and they are aggressively testing the Fed, which doesn’t see the threat unless, of course, they see something that we don’t. Three cuts are still expected in 2024. Stocks should remain encouraged but for how long?
“In this new global environment, policymakers, even those previously in the ‘lower forever’ camp…”
Interest rates drive everything, and they are as volatile and directionally uncertain as they’ve ever been. So are the global macroeconomics driving them. Global fund managers are required to make bets on outcomes for stocks, currencies, and commodities based on the cost of money. If perspectives on rates are so dispersed, how can we judge the value of the things that are driven by them?
“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance…”
Key economic reports in the upcoming week are various and reasonably important, but Friday’s employment report is the only one that really matters. The Fed’s game plan was to raise interest rates enough to reduce the imbalance in the labor market. But the tightening is really quite marginal compared to the continued stimulus, and it is that stimulus that has been supportive of higher equity valuations and growth. I think the stock market sees this. What it fails to see — for now — is that the stimulus is supporting higher prices.
“There’s no money. There’s no money. If we don’t make a fiscal adjustment, we’re headed for hyperinflation…”
Markets need to figure out a normalized level of interest rates appropriate to this volatile new era of De-globalization, rising military engagement, heightened Geopolitical tensions, excessive indebtedness, and the irrational rise in deficit spending.
“Everything we hear is an opinion, not a fact. Everything we see is a perspective…”
50% of the Perry Capital portfolio is in the money market. The T-Bill position remains at 25% of portfolio assets.
Long Treasuries
and Bitcoin. Everything seems expensive.
“Everything we hear is an opinion, not a fact. Everything we see is a perspective…” Read More »
“Equity fund managers always tell you what’s going to go right, but what risk managers want to know…
The Perry Capital Portfolio remains unchanged (75% cash.) 50% of the portfolio is in the money market. The
T-Bill position remains at 25% of portfolio assets. Long Treasuries
S&P 500 is also a 10% position. So far, everything is up. My small Silver and Bitcoin positions have been good
performers for the start of the year. Lower long-term funding rates are the key to the whole puzzle. We’ll
know more about that on February 1st.
“The Future has many names. For the weak it is unattainable. For the fearful…”
The Perry Capital Portfolio remains unchanged (75% cash.) The discipline to maintain a cash position
throughout the year was not easy but proved fortuitous. Those who correctly expected a hawkish Fed beat the market in 2022. Those who did not, underperformed. It will be more complicated in 2023.
“The Future has many names. For the weak it is unattainable. For the fearful…” Read More »