It’s always good to reflect as a year comes to a close and a new one begins. Professionally, 2023 was extremely challenging (and humbling). Our beautiful hedge capping most of our variable rate loans at 1.25% for 30-day LIBOR, when it was still in existence,
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Perhaps Powell’s pivot was highly influenced by having access to the Fed’s favorite inflation indicator, the Personal Consumption Expenditure Index (PCE), well ahead of its official release last Friday. As this headline from the Wall Street Journal shows, the index went into negative territory,
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Powell did it for the third time. He proved for the third time that you should listen to him carefully until he does something completely different, and then you should listen to him again. After raising rates aggressively starting in April 2022, after he had said that the Fed wouldn’t raise rates until the end of 2023 at the earliest,
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In the wake of last Friday’s jobs report, Treasuries sold off, and yields rose, as this table shows.
Once again, there was a material difference between the ADP report, which came in weaker than expected,
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I recently finished Bill Walton’s autobiography and thoroughly enjoyed it. Talk about someone who has had a zest for life and embodies perseverance. That is one of the great benefits I get out of reading about other people’s lives.
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I was definitely in the camp that once the yield curve inverted, we were headed for a recession within a year or so. The spread between the 10-year Treasury and 2-year Treasury yields went negative (inverted) in early July 2022.
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I must say that when I read this tweet last week, I felt heard, listened to, and understood. It was cathartic in a way.
I know I’m being a bit melodramatic, but there are so many cross-currents in the economy that it has made forecasting quite challenging.
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I have written continuously over the last year or so about critical yields for the 10 and 2-year Treasuries such that if they were breached, the probability of them going higher would be quite elevated.
Looking at the following 10-year Treasury chart,
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Given China’s importance to the world economy, I wanted to focus this week’s post on some of the challenges China is facing in the short and long term.
China’s Economy
From an investor perspective, there is very little optimism that China’s economy will experience stronger growth after severely disappointing in the wake of its Covid reopening.
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Fed Chairman Jay Powell spoke last Friday at the Jackson Hole conference for Central Bankers. He was pretty clear that the Fed would remain vigilant in its fight against inflation.
The economy is doing better than the Fed expected,
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