This quarter has had a little for everyone. Stock market gyrations for sure but with a grandiose ending. Short term interest rate yields north of 4 and even 5 percent as the debt ceiling impasse came and went. Crypto with another rise and fall. Ah yes…. Another quarter in the books but with a decent outcome for us regular guys (and gals). All in all, I’ll take it any day…..Markets are recovering yet nobody is excited which is a great place to be!
Looking back, the media drama of the debt ceiling was all the rage and all the news. Not to be flip, but default was never on the table. As dumb as politicians may be, suicidal isn’t in their bag of tricks. Have seen this act about 10 times in my professional life and they all end the same. Both sides claiming victory and life moves on. All awaiting the next crises around the corner for arms to be waved and hair to be set on fire.
During the quarter, the Federal Reserve kept doing what it said it would. Slowly drain liquidity from the money supply and raise cost of money (interest rates) until the inflation monster was slain. This narrative will continue, and inflation will be brought back down. That’s not to say prices will go down… they won’t. The inflation we saw is now part of the system and prices are where they are. FUTURE prices won’t rise as fast. The byproduct of inflation is people were kinda screwed because salary raises weren’t as large as the inflation hit to their wallets. That’s always the rub. The “little guy” gets a thousand bee stings every day and the narrative ignores it. An economic dissertation for another time.
Ok enough of the recap…. What say you looking ahead one may be thinking. Glad you asked… For starters our economic (and market) prognostications have not changed. The Fed will continue to follow its mandate and kill inflation. Higher for longer on rates and draining the money supply may go on much longer. Interestingly, the over all economy has handled it very well. A very favorable outcome thus far. It has set up a backdrop we haven’t seen since the late 90’s with reasonable interest rates for savers coupled with a steady and positive equity/stock landscape. On the flip side, a boon for investors isn’t so good for debtors. Mortgages, auto loans, personal loans, and revolving credit are all high. When student loans resume (opinion that they will resume after a SCOTUS verdict) it will be at a not so good time from an interest rate perspective. There will be a time to refi em all in the future, basically when the inevitable recession hits, but that might take a while.
From a portfolio positioning standpoint, we have been overweight equity (stock) and will continue to be so. Not in a crazy “throw caution to the wind” way but 10 to 15 percent more than our neutral position. Markets are leading indicators and will (maybe already have) turn north while the economy is still in the doldrums. From a bond standpoint, we are short and intermediate duration and will continue such. We have been very positive on the Muni side of the fixed income spectrum. For the first time in my 20 plus years I can see a good risk return tradeoff for Muni’s. We have also been using individual treasury securities within many of our portfolios in lieu of cash holdings.
As always, thanks for listening. If you would like to chat further I am always at the ready via zoom, phone, or good old fashioned office visit. Don’t be bashful about asking, I truly enjoy the convo and the connections. As a side note…. I would also strongly encourage you to respond to Tammy’s query about your football preferences and likes. We will be compiling the total and reporting back to all with the summary. We may also have (wink wink) some prizes for participating…..
Stay well. Talk soon.
Ed, Frank, Tammy
Edward Stiles
200 N Union St.
Kennett Square, PA 19348
office 610-719-0615 cell 610-745-1931
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