interest rates

“Life is really simple, but we insist on making it complicated.”

Newsletter /

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.

“Life is really simple, but we insist on making it complicated.” Read More »

“Can you say: Balanced budget?”

Newsletter /

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 »

“Grub first, then ethics.”

Newsletter /

The Democratic Party lost the election because of deteriorating economic conditions. The majority of voters are not better off than they were four years ago.
The electorate understood that policies implemented by the previous administration were slowing growth and inflating the economy. Voters knew their personal economic prospects were deteriorating and that increased indebtedness, aggressive government spending, and the money printed to pay for it were the cause of their livelihoods’ destruction. They also knew that another four years of the same policies would inevitably result in higher taxation.

“Grub first, then ethics.” Read More »

“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 »

“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 »

“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 »

“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.”

Newsletter /

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 failed to close above the psychologically important 5,500 level. Second, Biden’s Presidential term is likely finished. The damaging and likely permanent fallout from the debate is devastating. More on that below.

“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.” 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 »

“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 »

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

Newsletter /

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 »

“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.”

Newsletter /

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 »

“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 »

“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 »