“Curiosity is, in great and generous minds, the first passion and the last.”
“Curiosity is, in great and generous minds, the first passion and the last.” Read More »
Stagflation
“Neither a state nor a bank ever [has] had the unrestricted power of issuing paper money without abusing that power.”
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
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.
“Times and conditions change so rapidly that we must keep our aim constantly focused on the future”
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.
“Mr. Biden and his party have been given the chance to avoid a dire fate for their country and the world. They should seize it.”
The S&P 500 once again touched an all-time high (5,523) but closed on a down note for two reasons. First, inflation remains persistent. The Fed’s preferred inflation gauge (PCE) showed prices are still rising substantially more than they were pre-pandemic (+2.6% vs +1.3%.) The key (outside-down-day) reversal lower insured that for the 9th. straight day, the U.S. equity index
“It was the best of times, it was the worst of times…”
The economy is growing slowly and inflating quickly, which presents significant challenges to the economy, to unprofitable and indebted sectors of the market, and eventually to the government – but not at least until the election.
Heightened uncertainty, rising volatility, and rising indebtedness exert tremendous financial stress on broader portions of the economy. The government won’t let it break until after the election.
Perry Capital has anticipated rising inflation, which is helping corporate profitability, but, to date, has not resulted in higher yields –– although credit spreads are beginning to widen in weaker credits. Expect more.
“It was the best of times, it was the worst of times…” Read More »
“You don’t need a weatherman to know which way the wind blows.”
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.”
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 »
“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.
“Honesty is a very expensive gift. Don’t expect it from cheap people.”
77.25% of the Perry Capital portfolio yields 5.11% with principal guaranteed. I sold my short 25% Treasury
positions
“Honesty is a very expensive gift. Don’t expect it from cheap people.” Read More »
“Politicians are like bad horsemen who are so preoccupied with staying in the saddle…”
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.
“Politicians are like bad horsemen who are so preoccupied with staying in the saddle…” Read More »
“Ooh, a storm is threatening my very life today. If I don’t get some shelter…”
ALERT – THIS JUST IN. The FDIC announced that it has received two bids for First Republic Bank (FRC). The
bidders are JPM and PNC. Details are being scrutinized, and the winner will be announced before Monday’s
market opening.
“Ooh, a storm is threatening my very life today. If I don’t get some shelter…” Read More »
“You cannot escape the responsibility of tomorrow by evading it today.”
75% of the Perry Capital Portfolio remains in AAA-rated, very short maturity, and very liquid securities.
I remain extremely underweight the equity market.
“You cannot escape the responsibility of tomorrow by evading it today.” Read More »
“Often the difference between a successful person and a failure is not one…”
The most significant risk facing investors is the Fed’s march towards a restrictive monetary policy.
Indeed, there are others: the invasion of Ukraine, lockdowns in China, the crypto fallout, and even the
nature of free speech in America as encapsulated in the Twitter saga. All make top headlines.
“Often the difference between a successful person and a failure is not one…” Read More »