Our notes on the economy
The economic data continues to lead me to believe that the FED will be cutting rates. I just
wish I knew when. The market is now pricing in a rate cut in September with 78% believing
it will happen. The economy is slowing down. The unemployment rate rose in June to 4.1%
(the highest since June 2021). The total number of jobs in the US did increase by 1.7%,
however this is the lowest year over year increase since March of 2021. Also telling is that
average hourly earnings, though increasing by 3.9% over the past year, have also
decreased to the lowest level since May 2021. So, what about inflation? Core CPE (which
the Fed prefers to look at more than others) moved down again as well to 2.6% in May,
again the lowest since March 2021. Just by looking at the data, it certainly appears to me
that we are certainly slowing down and that a rate cut should be coming.
Federal Reserve Bank Washington DC
Our discussion on the bond markets
I for one am certainly glad most of our investors loaded up on various fixed income
instruments, except of course the dreaded bond funds that we loathe. Going back one
year we can see bond rates screaming higher, thus pushing the prices down (another
reason why we don’t buy bond funds). As always, the brunt of the damage has been done
to the longer dated bonds with the 10-year US Treasury seeing its yield jumping over 13%,
the 5-year jumping over 10%, and the 1-year increasing by 4%. Now that Redfish investors
have grabbed these bonds, we will continue to patiently gather those higher yields and
watch the prices go up as rate cuts happen (if and when they do!). We continue to advise
that clients take advantage of these prices and yields by looking at US Treasuries as well as
AAA rated tax free municipal bonds. We expect that once the Fed starts, there will be a
tremendous amount of movement and volatility.
Our discussion on the equity markets
The all-time high party for the S&P 500 continues to rock along as I write this clocking in 35
new highs this year alone. This folks is a bull market. Can it continue? What is interesting is
that the primary outperformance has come from 6 companies with the lion’s share being
Nvidia clocking in an astounding 154% year to date return. Interestingly, the small cap
index is actually down on the year losing 2%. The gap between these indexes is as wide as
it has been since October 1, 1999. Anyone remember that year in the markets? We
certainly do. So how are we addressing this massive gap in the haves and have nots?
Interesting thoughts we discussed
Here we go again. The divisiveness of politics is back with us as we are heading into
another election for the POTUS. As a Facebook user, I am constantly amazed at what some
people will copy, paste and post. Depending on which side of the isle you like to sit, I can
almost guarantee that you can find a graph or a chart showing the world why this person or
that person is either the GOAT or biggest failure in US history. Just for fun, especially when
the memes are about the economy, inflation, and the usual suspects, I will do some
background checking and voila, these are taken way out of context. I bring this up for a
simple reason that was discussed above. The Fed will be acting on rates soon. As you have
heard us say and write, this has been expected for years since COVID. We saw this coming
as did every other rational human being on the planet. The Fed is NOT a body that moves
with either party. However, I am awaiting the cheers and jeers from both sides of the
spectrum once rates start to move. Here is what you will see and hear. The Fed hates
Trump and loves Biden (or whoever it may be in the ticket) and wants him back. Or the Fed
is in love with Trump and once to hurt the economy to help him win. Just know that
whatever happens, whenever it happens, there will be a firestorm from the political talking
heads trying to get your vote. I encourage everyone to turn down all of them and simply
look at the math. Math doesn’t care. Math doesn’t vote. Numbers are numbers. That’s why
all of us Redish rely on the numbers to tell us what to do and when to do it. We take
emotion out of the equation.
Allocation suggestions
Taking in all the above and we continue to maintain that our portfolios have a base
allocation that is comprised of:
50% Stocks
30% Fixed Income
10-20% Private Investments or Alternatives
All investors and their plans are created differently, and every investor should have an
allocation that fits their needs. The above allocation is what we call our “base” which
primarily is for people looking to grow their assets. The percentages will change depending
on where clients are in their lifecycle and plans.
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states where it is properly registered or is excluded or exempted from registration requirements. Registration as an investme nt
adviser does not constitute an endorsement of the firm by the SEC, nor does it indicate that the adviser has attained a particular
level of skill or ability.
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