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5 Year Real Rates are Soaring
The Federal Reserve closely follows how restrictive or easy its monetary policy is. While many indicators are available, such as yield curves, loan growth, and bank lending standards, real interest rates are their preferred indicator. Real rates are simply interest rates, less the expected inflation rate. More precisely, U.S. Treasury yields for various maturities are […]
Jul 7, 2023
Are Household Savings Still Driving the Economy?
Since 2020, individuals and corporations have been provided significant funds from the government to combat the pandemic-related economic shutdown. Initially, as shown below, much of the money was saved. As the economy reopened, the excess of household savings was slowly spent. High-interest rates are not slowing the economy in part because consumers are spending down […]
Jul 6, 2023
Long Term Valuations Remain Hefty
Over the last three years, massive amounts of fiscal and monetary stimulus and irregular economic activity due to the pandemic have resulted in massive volatility of stock prices and earnings. Consequently, shorter-term valuations have been tough to make sense of. As such, it’s worth taking a step back and focusing on long term, lesser-followed valuation […]
Jul 5, 2023
Is Nike A Precursor of Weaker Earnings?
Last week Nike reported a fourth-quarter net income of .66 cents a share, down from .90 cents in the prior fourth quarter. Interestingly revenue rose by 4.8%. The culprit was a 1.40% decline in its profit margin. The company blames price markdowns and higher input costs. As we discussed with General Mills in last week’s […]
Jul 3, 2023
Will Second Half Performance Follow the First Half?
The S&P 500 rose 13% in the first quarter, the third-best first-half-of-the-year performance since 2000. While the performance was outstanding, the critical question for investors is what comes in the second half. The graph below compares the first half performance for each year to its second half. The circles highlight first half periods, like the […]
Jun 30, 2023
Uninversion Not A Yield Curve Inversion Signals Recessions
Our most recent article, Treasury Yield Curves- Is This Inversion Different, explains why inverted yield curves have always preceded recessions. In a nutshell, U.S. and global economic growth heavily depend on increasing debt levels and are very sensitive to the level of interest rates accompanying the debt. When the yield curve inverts, banks that often […]
Jun 29, 2023
House Prices May Struggle: Renting vs. Owning
In yesterday’s Commentary, we shed light on why permits and starts for new house construction were increasing rapidly despite high mortgage rates. To wit: “Consequently, it appears that the stagnant market for existing homes is creating an opportunity for builders to fill the void and meet some of the demand.” As a result, we theorized […]
Jun 28, 2023
Volatility and Stocks Are Defying History
Over the last thirty years, the relationship between stock prices and stock market volatility has been strongly inverse. In other words, lower stock prices are often accompanied by higher volatility and vice versa. Over the last two weeks, the relationship has been flipped on its head. Despite a few moderate declines in stock prices, volatility […]
Jun 27, 2023
Activity is Slowing in the Eurozone Again
Business activity is slowing in the Eurozone once again. The Eurozone’s composite PMI for June, released on Friday, fell to 50.3 from 52.8, marking only a slight expansion of business activity during the month. The slowdown was due to weakening service growth and a deepening downturn in manufacturing activity. Despite the ongoing weakness in the […]
Jun 26, 2023
The DOE Loan to Bring Battery Production Onshore
BlueOval, a joint venture between Ford and South Korean battery maker SK, will receive a $9.2B conditional loan from the US Department of Energy (DOE). The DOE loan proceeds will finance the construction of three battery production facilities in the US. It’s the largest loan the DOE has ever made to a US car maker […]
Jun 23, 2023
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