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“You cannot escape the responsibility of tomorrow by evading it today.”

Newsletter /

The economy continues to expand and consistently exceed expectations across most data series. Yet confidence surveys continue to languish well below pre-pandemic levels; at the same time, investor bullishness has rarely been higher. This is unusual and should reconcile itself to some consistency. I would expect confidence to rise. Yet truthfully, it is fiscal dominance –¬ more so than monetary dominance ¬– that is the more significant issue. The debt ceiling is currently suspended. In January 2025, however, it will automatically come back into effect. This means that the U.S. Treasury will not be able to issue more debt until Congress raises or suspends the ceiling again. However, they still have spending obligations and are running structural deficits due to the policies Congress has implemented for decades. Thus, government spending could potentially be forced downward – depending on whether conservatives or liberals control Congress. If that happens, it would be a net positive for the economy.

“You cannot escape the responsibility of tomorrow by evading it today.” Read More »

“The greatest threat facing humanity is a radical Islamist regime meeting up with nuclear weapons.”

Newsletter /

The S&P 500 traded to yet another all-time high last week: $5,878. The benchmark closed Friday at $5,865, up 0.9% on the week, while the Dow rose 1%, and the NASDAQ was up 0.8%. The U.S. equity market performance marked the 6th straight week of gains––the longest winning streak of the year.
This should surprise no one. This is an unsurpassed, debt-fueled, inflationary growth cycle.
Gold, too, is at another all-time high ($2,749.)
70% of S&P 500 companies reported earnings, and 75% beat expectations, which (truthfully) were marked down over the last month––so, essentially, coming in close to expectations (+6%).
Treasury yields continue to climb and have done so since Powell cut the Fed funds rate on September 18th. This confirms that the financial system, the economy, and markets do not require more stimulus at a time when debt and deficits, along with robust consumer spending and a growing labor force, are providing ample liquidity. 10y Treasuries were bought at 3.595% the day before (3.595%) and have risen to 4.217%. That’s a yield increase of +0.62%.

“The greatest threat facing humanity is a radical Islamist regime meeting up with nuclear weapons.” Read More »

“Neither a state nor a bank ever [has] had the unrestricted power of issuing paper money without abusing that power.”

Newsletter /

Stocks rallied smartly last week. The Dow was up 2.6%, The S&P 500 rallied 4.0%, and the Nasdaq jumped 6.0%.
Growth stocks outpaced value shares by a wide margin. The big-cap mega-scalers led the rally, and the poster child for the AI revolution was the clear winner as rallied 16%!
Don’t get too excited, though; the broad market (S&P 500) remains within its range since April. The S&P 500 is marginally
(-0.50%) below, the Nasdaq is -5% below, and the Dow is -17.56% below all-time highs. Markets are skittish and fearful of change.

“Neither a state nor a bank ever [has] had the unrestricted power of issuing paper money without abusing that power.” Read More »

“Sitting [in my office] on a Sunday afternoon… going to the candidates’ debate…”

Newsletter /

It has been a bad start to September for the financial markets. The earnings reports portrayed a mixed picture for both the tech sector and the broad economy. Added to that is the upcoming presidential election. Markets do not like uncertainty. There’s plenty of it, and it’s not going away anytime soon.

“Sitting [in my office] on a Sunday afternoon… going to the candidates’ debate…” Read More »

“All great changes are preceded by chaos.”

Newsletter /

The Fed seems destined to cut interest rates on September 18th. Chairman Powell and his colleagues have stopped talking about inflation and pivoted towards unemployment. What a shock.

The narrative surrounding the latest Powell pivot is squarely focused on what the Fed believes are the weakening prospects for the U.S. economy, with a clear focus on the full-employment component of their dual mandate. Many agree. Many do not.

Perry Capital anticipates an economy that will continue to expand — supported by healthy consumer spending, bolstered by a labor force that continues to grow and which has never been larger, and by a high level of household income, which has never been greater. This, along with robust government support in select portions of the economy, leads us to believe that growth, employment, and inflation pressure will all continue to surprise to the upside.

“All great changes are preceded by chaos.” Read More »

“He who awaits much can expect little.”

Newsletter /

The Big Story of the Week was Powell’s speech in Jackson Hole. The Chairman’s message was clear: The Fed’s focus has shifted exclusively in the direction of U.S. Employment. Inflation will be allowed to run hot–especially in services and shelter.
There was little doubt that more stimulus was coming. Powell has signaled for months that he wants to stimulate—all he needed was supporting evidence. He got it. The BLS revised its new job calculations (Reducing the new jobs created in the year by over 800,000), which now indicate that employment growth was 30% lower than previously advertised.

“He who awaits much can expect little.” Read More »

“Times and conditions change so rapidly that we must keep our aim constantly focused on the future”

Newsletter /

Since January 2021, government measures of core inflation are up 18%-19% if food, energy, and shelter are excluded. However, Food prices are up 25%, Energy prices are up 32%, and Shelter costs are up 22%. Perhaps more critically, Services Inflation, which was up +4.7% in the last twelve months, is up close to 50% over the same time period. Maybe prices for the items that are stripped out of Headline Inflation statistics (i.e., necessities) will fall if we have rising unemployment (and a recession.) But, for now, rising service prices are holding up progress on inflation.

“Times and conditions change so rapidly that we must keep our aim constantly focused on the future” Read More »

“Bringing inflation down to the Fed’s 2% goal while maintaining a healthy labor market is the number…”

Newsletter /

The rising sentiment towards a Fed rate cut seems premature—even for September 18th. Financial conditions are easier than they have been in two years. The S&P 500 is still up by 14.5% for the year (just below the Nasdaq’s 2024 return of 15.6%), but it sure doesn’t feel like it, even though it remains well above average returns over the last 15 years.

“Bringing inflation down to the Fed’s 2% goal while maintaining a healthy labor market is the number…” Read More »

“Oh, what a tangled web we weave when first we practice to deceive.”

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Market sentiment has taken a significant hit. The astonishing IT failure, regarded by many as the worst ever, has severely dented investor bullishness. It is especially concerning and even more shocking to investors than the political drama we are witnessing. The vulnerability we’re all feeling about our extreme reliance on technology might actually be even worse than originally believed because it’s unclear whether our technology systems can do anything to sufficiently remedy the situation and prevent future occurrences.

“Oh, what a tangled web we weave when first we practice to deceive.” Read More »

“The ancient art of deception is to present two lies and get the people arguing viciously about which is true.”

Newsletter /

When the Fed finally started raising interest rates in March 2022, Mr. Powell reminded investors that the Fed’s primary objectives were full employment and stable prices. The Fed is now as close as it has been to achieving those objectives since the pandemic.
A balanced and patient Fed has been a stabilizing force in a chaotic world. Global GDP is rising, and headline inflation pressures in most countries appear to be abating. Perhaps the Fed’s duel mandate is on the verge of being realized.
Mr. Powell’s Fed last hiked rates in July 2023, yet the economy appears to be slowing more quickly now than it has since the Fed paused. Indeed, reporting to Congress last week, Mr. Powell sounded even more dovish than he did at the G7 confab 10 days ago. He seems convinced the Fed is succeeding in reducing inflation and is on track to reach its target objective of 2%. Maybe he’s right.

“The ancient art of deception is to present two lies and get the people arguing viciously about which is true.” Read More »

“If the Lord Almighty came down and said, ‘Joe, get out of the race,’ I’d get out. But He’s not coming down.”

Newsletter /

Being an economic thinker rather than a political one, I will say that all these elections seem to have one thing in common—voters are rejecting the status quo of imposed statism. They are rejecting the policies of excessive indebtedness and deficit sending. Voters know first-hand that slow growth and higher prices are pushing them further and further behind in their quality of life. The famous “misery index” is rising everywhere from Beijing to Tehran, Moscow to Paris, Berlin to London, and Washington. Most major countries across the world are in danger of debt death spirals. Voters everywhere know government bureaucrats are asking them to sacrifice more than they can bear. They want change.

“If the Lord Almighty came down and said, ‘Joe, get out of the race,’ I’d get out. But He’s not coming down.” Read More »

“If you do not know what port you sail to, no wind is favorable.”

Newsletter /

The S&P 500 touched yet another all-time high Friday at $5,505. It was up +0.6% on the week. The NASDAQ also hit another all-time high ($17,936) but could not break the big round number of $18,000 in two attempts. It was flat on the week. Friday was “Triple Witching” Options expiration – over $5t in options expired. and options were an enormous percentage of expired option contracts and may have contributed to the 10% hit on the shares of .

“If you do not know what port you sail to, no wind is favorable.” Read More »

“History’s cunning passages, contrived corridors & issues deceive us with whispering ambitions & guide us by vanities.”

Newsletter /

Perry Capital is positioned for slower growth and higher inflation into the Summer. The economy continues to be supported by above-trend consumer spending from asset owners and way-above-trend increases in government spending. The Fed, or the Treasury Department, does not need to stimulate the economy, but it may do so to bolster the present administration’s re-election.

“History’s cunning passages, contrived corridors & issues deceive us with whispering ambitions & guide us by vanities.” Read More »

“I didn’t have time to write a short letter report, so I wrote a long one instead.”

Newsletter /

Perry Capital is positioned for slower growth and higher inflation into the Summer. The economy continues to be supported by above-trend consumer spending from asset owners and way-above-trend increases in government spending. The Fed, or the Treasury Department, does not need to stimulate the economy, but it may do so to bolster the present administration’s re-election.

“I didn’t have time to write a short letter report, so I wrote a long one instead.” Read More »

“By all means, let’s be open-minded, but not so open-minded that our brains drop out.”

Newsletter /

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 »

“Prejudice is a great time saver. You can form opinions without having to get the facts.”

Newsletter /

All three key US equity indices made all-time new highs for the week on the notion that economic data was softer. We saw:
1. A slowdown in housing activity. (Existing home sales were down -1.9 %, and New Home Sales were down -4.7%, albeit from near-record high levels.)
2. Languishing consumer sentiment surveys (which were at 100 pre-pandemic and bottoming at 50 in 2022) have slipped from 80 in Q1/24 and are down to around 68-69.)
3. Slightly lower inflation expectations (1 year from now nudged lower to 3.3%.)
4. But, most interesting is a notable pick-up in U.S. service activity (the PMI services survey jumped to 54.8 from 51.3), which is where the bulk of the inflationary pressure is causing the greatest damage to households and businesses.

“Prejudice is a great time saver. You can form opinions without having to get the facts.” Read More »

“You don’t need a weatherman to know which way the wind blows.”

Newsletter /

I have said for almost a year that there will be no Fed cuts in 2024. I stand by that forecast for one simple reason: “Immaculate Disinflation” is over. The U.S. economy is inflating, and it has been for a year. The structural and systemic price increases are not only permanent but accelerating. The twin cancers of elevated and rising inflation have metastasized and imperiled the health of the U.S. economy.

“You don’t need a weatherman to know which way the wind blows.” Read More »

“I thought by now you’d realize, there ain’t no way to hide your lyin’ eyes.”

Newsletter /

Stagflation reigns. Slow growth (2.5%) with rising inflation (4%) — driven by the rising cost of labor (+5%) — is the very definition of a stagflating economy. This forecast remains the dominant theme for the economy, markets, and investors. Stagflation has been the Perry International Capital Partners (PICP) forecast for two years, and we continue to be more worried about rising inflation than we are about slower growth.

“I thought by now you’d realize, there ain’t no way to hide your lyin’ eyes.” Read More »

“No amount of sophistication is going to allay the fact that all your knowledge is about the past and all your decisions are about the future.”

Newsletter /

The extreme performance divergence between sectors on the receiving side of the stimulus is stunning. The businesses best positioned to benefit from spending by the upper and upper-middle class are thriving — just look at the share prices of your favorite credit card company; they are at all-time highs. Those most sensitive to interest rates and, thereby, the worst positioned for tight monetary policy are or soon will be flirting with bankruptcy. If you look at commercial real estate owners and their lending banks, you’ll see that their share prices are at all-time lows.

“No amount of sophistication is going to allay the fact that all your knowledge is about the past and all your decisions are about the future.” Read More »

“Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.”

Newsletter /

Economic data continues to surprise to the upside; the Citi surprise index was up again from last week (44.10 vs 39.0) and the January lows (0). It is above pre-pandemic levels, and the labor market is stronger, too. Unemployment is 3.7%, with claims falling and the number of available jobs rising.

“Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.” Read More »

“In this new global environment, policymakers, even those previously in the ‘lower forever’ camp…”

Newsletter /

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?

“In this new global environment, policymakers, even those previously in the ‘lower forever’ camp…” Read More »

“There’s no money. There’s no money.  If we don’t make a fiscal adjustment, we’re headed for hyperinflation…”

Newsletter /

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.

“There’s no money. There’s no money.  If we don’t make a fiscal adjustment, we’re headed for hyperinflation…” Read More »

The “peak Fed funds narrative” is all the rage… risks have not disappeared, just conveniently ignored.

Bulletin /

The “peak Fed funds narrative” is all the rage. The risk rally off the October 27th lows completely overwhelmed the negative market inputs of persistent inflation, excessive indebtedness, deficit spending, weak political leadership, and increased fiscal and monetary stimulus.

The “peak Fed funds narrative” is all the rage… risks have not disappeared, just conveniently ignored. Read More »

“He’s a dictator in the sense that he’s a guy who runs a country that is a communist country…”

Newsletter /

The “peak Fed funds narrative” is all the rage. The risk rally off the October 27th lows completely overwhelmed the negative market inputs of persistent inflation, excessive indebtedness, deficit spending, weak political leadership, and increased fiscal and monetary stimulus.

“He’s a dictator in the sense that he’s a guy who runs a country that is a communist country…” Read More »

“Just close the F**king Door” — Federal Reserve Chairman Jerome Powell

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“Just close the f**king door!” said Fed Chairman Powell after being interrupted by a protestor as he was delivering his latest Policy speech. That line attracted more attention than his comments which suggested that more hiking may be needed to bring down inflation. Stocks ignored the restrictive bits and determined Powell was cool. The S&P 500 closed at its highest level since September 20th!

“Just close the F**king Door” — Federal Reserve Chairman Jerome Powell Read More »

“In economics, things take longer to happen than you think, then happen faster than you thought they could.”

Newsletter /

The stock market had its best week since November 2022 (S&P 500 was up almost 6% and the NASDAQ, almost 7%.) The intense rally occurred for four reasons, in critical orders of importance and timing: 1) Hedge funds covered huge short positions in bonds and stocks, 2) Less long maturity Treasury bond supply, 3) Investors interpreted Mr. Powell’s message as a signal for peak rates, and 4) Slower growth in the labor market.

“In economics, things take longer to happen than you think, then happen faster than you thought they could.” Read More »

“The scientific man does not aim at an immediate result. He does not expect that his advanced ideas will be readily…”

Newsletter /

Interest rates have been rising not just because of inflation but because of accelerating credit risk. The U.S. Government has gotten itself into a position where it is forced to borrow in a higher rate environment. This is tremendously problematic because, at some point, rates will rise far enough that investors will be forced to reduce their U.S. equity holdings. The potential destruction of investor wealth may be significant enough to force the Fed to abandon its inflation fight. The Fed will stop its tightening campaign when the stock market tells it to. That moment may even arrive more quickly than we can imagine, but believe me, it’s out there.

“The scientific man does not aim at an immediate result. He does not expect that his advanced ideas will be readily…” Read More »

“If some ‘expert’ were to come up with even the most meager ‘proof’ that…”

Newsletter /

Global macro geo-political and economic factors will remain the most significant factors for investors in the days, weeks, and months ahead. A broader and far more destructive armed conflict and escalated military engagement are, by far, the most significant issues confronting investor portfolios.

Wars are inflationary. Now we have two of them. Deglobalization, which is accelerating, will also result in higher prices. Bond investors are increasingly and rightfully vigilant. They demand a higher risk premium for the deteriorating financial state of the U.S. Government.

“If some ‘expert’ were to come up with even the most meager ‘proof’ that…” Read More »

“Some people don’t like change, but you need to embrace change if the alternative is disaster.”

Newsletter /

• Investors’ “Flight to Safety” trades dominated market action last week. That trend will continue. The most obvious shift in investor sentiment was the screeching halt to the trend of higher rates in the U.S. Treasury market. 10y Treasury yields reversed their ascent. Rates fell from almost 5% to this morning’s current level of 4.60%. Gold rose 3.5%, and Oil (SPOT WTI) (+3.4%) surged.

“Some people don’t like change, but you need to embrace change if the alternative is disaster.” Read More »

“Our settled aspiration is avoiding the market crevasses. My experience suggests there is almost an inevitability…”

Newsletter /

Bond yields are rising because Supply is rising… and Demand is falling. Bond investors demand more of a premium due to a much higher risk in owning U.S. Government debt. Indebtedness, the leverage on it, and deficit spending are overwhelming the capacity of bond portfolio managers to take on additional risk…

“Our settled aspiration is avoiding the market crevasses. My experience suggests there is almost an inevitability…” Read More »

“History repeats itself, but in such cunning disguise that we never detect the resemblance…”

Leave a Comment / Newsletter /

77.25% of the Perry Capital portfolio yields 5.09% with principal guaranteed. I sold my short 25% Treasury
positions and because the Fed is going to raise rates and keep them there for much longer than the market expects. This will exert an enormously negative influence on trillions of outstanding credit market
exposure.

“History repeats itself, but in such cunning disguise that we never detect the resemblance…” Read More »

“The problem with leverage is that you have to pay it back.”

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75% of the Perry Capital Portfolio remains in AAA-rated, very short maturity, and very liquid securities.
I remain underweight the equity market because the valuation metrics of risk assets are not discounting for
persistent inflation and a slowing economy to the degree necessary to be attractive. I would rather watch from
the sidelines at 5% until the strategic risk/reward is in my favor. I must say, though, that the Nasdaq 100 (QQQ)
performance y-t-d is impressive. Perhaps A.I. is a paradigm shift as impactful as the internet.

“The problem with leverage is that you have to pay it back.” Read More »

“If not for you, my sky would fall. Rain would gather, too. Without your love…”

Leave a Comment / Newsletter /

75% of the Perry Capital Portfolio remains in AAA-rated, very short maturity, and very liquid securities.
I remain extremely underweight the equity market because the valuation metrics of risk assets are not
discounting for persistent inflation and a slowing economy to the degree necessary to be attractive.

“If not for you, my sky would fall. Rain would gather, too. Without your love…” Read More »

“What’s the deal with bank runs? I mean, why are they called bank runs?”

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I still have small positions in Silver and Bitcoin.
Given recent events, things may get even crazier before they calm down. Monday’s opening and the rest of
next week will be telling. As I cautioned last week, be patient and remain defensive; I suspect that most assets
you might be interested in buying will be available at lower prices.

“What’s the deal with bank runs? I mean, why are they called bank runs?” Read More »

“Judging by the price action in markets over the past couple of months…”

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50% of the Perry Capital portfolio is in the money market. current yield 4.29%. The T-Bill position
remains at 25% of portfolio assets. 3-month T-Bills now pay 4.63%, 6-month T-Bills pay 4.81%. Long Treasuries
(10% of portfolio) are up 6.7% in 2023 and have returned 12.73% over the last three months.

“Judging by the price action in markets over the past couple of months…” Read More »

“What comes next is weak economies and tough policy choices.”

Leave a Comment / Newsletter /

The battle at hand is to reduce inflation. The Fed has been aggressively raising Interest rates while
reducing its balance sheet by $95bn/month, liquidity is being drained from both the financial system and
the economy, and market volatility is rising. The ramifications will be significant. Therefore, I remain
defensive and have maintained the status quo in my portfolio.

“What comes next is weak economies and tough policy choices.” Read More »