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Unprecedented times or not?
Are these unprecedented times or not? Or is history rhyming again. Is the Fed going to cut rates, what is going to happen with the election, are we facing a continued bubble, etc.
The Rollercoaster Is Coming
Things are starting to get interesting. Economic data is showing signs of life, but the undercurrent is still strong. Like at the beach in California, rip tides are often time hard to see, but deadly. Having the right safety guards in place to protect everyone. Will rate cuts be the answer to calm the underlying currents or are they exacerbate the underlying currents?
Supply and Demand
Additionally, banks continue to tighten lending and as of Q1 2024 marked eight straight quarters of tightening lending. Why does this matter? Supply and Demand. The price of money or credit is the interest rate. The amount of money in the system caused by the US debt combined with the banks tightening, it creates a near perfect problem. One the other hand consumer confidence is accelerating and we are a consumer driven economy...
False Pull Back (Potemkin Pull Back)?
The theme Higher for Longer continues in Debt, Deficit, and inflation continues. Loss in buying power. Headwinds abounds. What we are seeing could be a "Seven Day Forecast" that sums up what the Fed is feeding us on inflation and some other data that are providing. They keep holding the possibility of a rate cut that will be the savior of the market and allow the economy catch up to the stock market.
A Potemkin Village or Not?
Do we have a Potemkin Village on our hands? The 2yr vs 10yr yield curve is still inverted, inflation is still high, and government is still spending like a drunken sailor. Like with all bubbles we have to admit there is one.
With that said, one should never bet against the US economy. Having the right risk allocation within your portfolio is key for ongoing success.
Is All Well in The World?
The US is a consumer driven economy thus when the general household has more money to spend it will boost the economy overall. However as we discussed in previous newsletters there is still are student loan payment issues, increasing credit card debt, and inflation continues to rise. There are lots of headwinds, by cultivating an improvement in consumer sentiment is less bad and thus help move the sentiment from an investment manager standpoint to be willing to move into more risk (put more cash into the market). Is everything Rosy?