Quarterly Client Letter: Q3 2024
Today, the Federal Open Market Committee decided to reduce the degree of policy restraint by lowering our policy interest rate by ½ percentage point. This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation…
The Housing Market and Rate Sensitivity: What Happens Next?
The Housing Market and Rate Sensitivity: What Happens Next? On Wednesday, September 18th, the Federal Reserve is expected to cut interest rates by 25 to 50 basis points (bps). In anticipation of rate cuts and a shift in Fed policy, longer-term Treasury Yields and mortgage rates have already moved lower in the bond market. On…
The Earnings Bar is High for Corporate America
The Earnings Bar is High for Corporate America Stocks entered a cyclical bear market in 2022, and perhaps for good reason. Yes, interest rates were on the rise. Yes, valuations in 2021 were extended and needed to cool off. Yes, geopolitical turmoil and inflation weighed on the market’s collective mind. Yes, economists were practically unanimous…
Quarterly Client Letter: Q2 2024
Quarterly Client Letter: Q2 2024 When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable. -Warren Buffett We were pleased to see that the five most profitable companies of the Fortune 500, based on profits generated in 2023, were, in…
Quarterly Client Letter: Q4 2023
“I think that a life properly lived is just learn, learn, learn all the time.” Charlie Munger, 2017 Berkshire Hathaway Annual Meeting Investing in financial markets is a constant education. A year ago, a Bloomberg survey of economists forecasted a 65% probability of recession for 2023. As the year progressed, there were plenty of reasons…
Obsessing Over Interest Rates
Obsessing Over Interest Rates “The theory of interest bears a close resemblance to the theory of prices, of which, in fact, it is a special aspect. The rate of interest expresses a price in the exchange between present and future goods. Just as, in the ordinary theory of prices, the ratio of exchange of any…
Quarterly Client Letter: Q3 2023
Quarterly Client Letter: Q3 2023 A soft landing is a primary objective, and I did not say otherwise. I mean, that’s what we’ve been trying to achieve for all this time. The real point though, is the worst thing we can do is to fail to restore price stability… Federal Reserve Chair Jerome Powell, Responding…
Rolling with the Punches
Rolling with the Punches The Federal Reserve has raised the effective Fed Funds rate over the past 18 months from 0% to 5.33%. The 10-year US Treasury Yield just hit a 15-year high around 4.30%. Mortgage rates are back above 7%. Source: YCharts via Peak Asset Management If we had known that this is…
Fool Me Twice: The U.S. Housing Market
Fool Me Twice: The U.S. Housing Market As markets internalized the risks of COVID-19 in March 2020, stock prices for home construction companies crashed (proxied here with ITB, the iShares U.S. Home Construction ETF). A precipitous drop in economic activity is historically bearish for home builders; perhaps in understandable fashion, investors rushed to sell their…