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“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 »

“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 »

“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 »

“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 »