Fed Up
Many are predicting the Federal Reserve will lower interest rates in July. There are some signs of inflation abating, but there are still concerns that it is not happening fast enough. It is difficult to comprehend the Fed reducing interest rates while stocks are surging and housing is strong. Oil prices have reached a new high for the year and even everyone’s favorite, chocolate, is spiking as well, with the price of cocoa more than tripling this year.
It is an election year and some feel that the Fed is playing politics. We hope not, considering the difficulty in engineering a soft landing. So far it seems that Chairman Powell has done an enviable job. Let’s hope that the Federal Reserve can continue to navigate us to an easy landing. There is no easy way to close the gap in our budget deficit and keep things status quo.
Non-bank lending is on a tear. Private credit pools have stepped in to fill a void created by the retreat of traditional banks. These funds have raised close to $200 billion last year. When too much capital flows to an area, competition in this space can drive down returns. This is specifically why we have chosen highly collateralized loan portfolios, NOT unsecured corporate debt.
In February, the Wall Street Journal reported that the US Government bond market had lost a key stabilizer known as the reverse repo. This Federal Reserve program that has been instrumental in keeping the US government’s borrowing costs low is experiencing a decline in participation. The funding for short term US Treasury Bills is critical for our economic stability. Hopefully, there will be government action to decrease our national debt without too much pain.
Recently, Boeing has been a big disappointment. In some ways this defense and aircraft manufacturer has been a national source of pride. Boeing airplanes were once considered the safest and most comfortable aircraft in the world. Additionally, as an American made product, it brought America prestige abroad. Fast forward… with many safety scandals and the 737 Max issues, Boeing has lost a great deal of credibility. This is a national blemish and I do hope a turnaround is in the offing.
One of my favorite investment analogies is a baseball one by Warren Buffet,
“It’s true, of course, that, in the long run, the scoreboard for
investment decisions is the market price. But prices will be determined by future earnings. In investing, just as in baseball, to put runs on the scoreboard one must watch the playing field, not the scoreboard.”
As Always,
Seymour W. Zises
