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Credit Stress Is Brewing As Market Complacency Rises
Typically, credit spreads and yields on junk bonds align with credit stress and anticipated stress in the credit markets. Today, however, an aura of complacency reigns over the junk bond market as credit stress for junk-rated companies increases. The top graph, entitled Credit Stress is Building, courtesy of Bloomberg shows that defaults on junk-rated bank […]
Apr 3, 2024
Powell Indicates Balance Between Inflation and Employment
For the better part of the last two years, Jerome Powell and the Fed have clearly indicated that monetary policy is primarily focused on bringing inflation back to its 2% target. Over the period, Powell indicated he was comfortable with weakness in the labor market if it meant inflation would normalize. Powell’s FOMC press conference […]
Apr 2, 2024
Christopher Waller The Fed’s Biggest Hawk Is Turning Dovish
In a speech last Thursday, Fed Governor Christopher Waller showed how even the most hawkish Fed members are turning dovish. The transformation from a hawkish to a dovish Fed began last October. In late summer and early fall of 2023, the Fed talked about rate increases and was steadfast about beating inflation. At the November […]
Mar 29, 2024
Small Cap Returns Point To Interest Rate Worries
As shown on the left, from 1979 until 2000, the correlation between small cap returns (Russell 2000) and the U.S. Treasury ten-year yield was often highly negatively correlated. As circled in the graph on the right, the U.S. experienced its highest yields in history during this period. Due to their high debt loads, small cap […]
Mar 28, 2024
Tesla And EVs Fall Out Of Favor
Yesterday’s Commentary discussed the fall of EV maker Fisker. After posting the article, Fisker shares were suspended from trading on the NYSE. Tesla, the world’s largest producer of EVs, has fared much better than Fisker, but it, too, is having problems. For example, Tesla’s revenue growth was only 3.5% in the fourth quarter. Competition from […]
Mar 27, 2024
Apartment Supply Will Surge This Year
Over the last few weeks, we have shared information about the troubles facing the commercial real estate (CRE) market and the regional banks that made CRE loans (CRE Pain & CRE Loans). The problem for CRE investors and lenders stems from overbuilding over the last ten years and high vacancy rates due to the work-from-home […]
Mar 26, 2024
CRE Pain is Just Getting Started
The vacancy rate of commercial real estate is higher today than at any point in the 2008 global financial crisis, per the Wall Street Journal. Yet, the CRE industry isn’t experiencing the pain one might expect to see with such high vacancy rates. CRE deals involving distressed sellers are still surprisingly low, at just 3.5% […]
Mar 25, 2024
QE Light May Allow the Fed to Help the Treasury
With inflation remaining sticky well above the Fed’s 2% target and the economy showing few signs of weakness, the Fed will find it difficult to cut rates meaningfully. Furthermore, ending QT and re-starting QE is much less likely in this environment. The problem with the Fed’s anti-inflationary stance is that it forces the government to […]
Mar 22, 2024
Fed Dot Plot Projections Point To Stronger Growth And Rate Cuts
The last release of the Fed’s quarterly Summary of Economic Projections, aka dot plots, was in December. At the time, the median 2024 GDP projection of the 19 Fed members was a relatively slow 1.4% growth. Further, they expected PCE prices to decline to 2.4% by year-end. Both estimates were slightly lower than their September […]
Mar 21, 2024
The BOJ Ends Historic Run Of Negative Rates
The Bank of Japan (BOJ) has finally ended its eight-year run of negative interest rates. On Tuesday morning, the BOJ boosted their overnight rate from -.10% to a range of 0% to 0.10%. Furthermore, the BOJ discontinued its Yield Curve Control (YCC) operations and stopped purchasing equity and corporate bond ETFs and REITs. However, their […]
Mar 20, 2024
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