Risk assets

“Can you say: Balanced budget?”

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Optimism is rising for two main reasons: The U.S. economy and markets are going to continue to improve because Trump’s pro-growth, America-First administrative agenda – which will include tax cuts, deregulation, decreased trade deficits, and, most importantly, reduced government spending – promises to be extremely effective. Investors know it. Confidence has skyrocketed on the part of corporate executives, small businesses, households, students, and… even farmers.

“Can you say: Balanced budget?” Read More »

“All great changes are preceded by chaos.”

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

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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.”

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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…”

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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…”

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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.”

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• 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…”

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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 »