Unemployment

“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 »

“It was the best of times, it was the worst of times…”

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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 »

“And if the band you’re in starts playing different tunes… I’ll see you on the dark side of the moon.”

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Economic data last week surprised on the upside. Manufacturing accelerated, prices accelerated, and job growth accelerated. The unemployment rate fell to 3.8%. The percentage of unemployed job seekers has remained under 4% since January 2021.
Treasury bond yields traded to 4.425%, the highest yield since November 2023. Credit spreads remain very tight. IG spreads are at +89bps and Hy + 303bps.
U.S. equity markets have been on a rampage. Valuations are stretched: P/E multiple is now 21.5 times forward earnings. P/E was 17 at the October low. Earnings growth has been selectively good but is now weakening.
Stocks had their worst week of the year, having traded down from record highs. The Dow (-2.3%) was the worst performer of the major indices for the week, the S&P 500 dropped 1%, and the NASDAQ slipped -0.75%. Growth stocks fared better than value shares. Energy stocks soared (+4%) to record highs and up 16% in 2024. Health Care and Real Estate shares performed the worst. Bitcoin was down on the week, and its correlation to NASDAQ is rising.
The VIX is up 23% on the week, as Oil and Gold surged, and geopolitical tensions are on the rise.

“And if the band you’re in starts playing different tunes… I’ll see you on the dark side of the moon.” 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.”

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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?

“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.” Read More »

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

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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…”

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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 »