Category Archives: Inflation

Between a Rock and a Hard Place

Market Memo

August 2023 – By Kyle Rohrwasser

A little history before we jump in, many people use this saying in their everyday lives, but many don’t know the origin. It was the actual origin of the idiom that comes from Homer’s Odyssey. In Homer’s Odyssey, Odysseus must pass between Charybdis, a treacherous whirlpool, and Scylla, a horrid man-eating, cliff-dwelling monster.

Although not a monster, the Fed has found itself in a situation that has one long-term solution but the timing of it will be tricky. As stated in many previous articles, the Federal Reserve has raised rates dramatically over the last year and a half, moving from 0% to 5.25%. This was done in the face of record-breaking inflation over the last 40 years, hoping the economy would slow and drive prices down. We have seen inflation fall from a 9% high in June of last year to a 3% month-end July of 2023, still short of the Fed’s 2% goal. Everything leads to lower rates eventually, but the question is, can the Fed time it correctly?

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Did they mean “Transit”-ory ?

Market Memo

March 2023 – By Kyle Rohrwasser

An eternity ago in 2021, the Federal Reserve kept reiterating that inflation was “transitory”. We, like many others, were skeptical because of the amount of money printed and moved into the financial system. This collided with a wildly efficient shipping industry that had stopped dead in its tracks (pun unintended) while demand for products continued to grow. But how do we get those products at such low and reasonable prices? Well, many of you may be familiar with China and US trading but you don’t understand how truly efficient the ships and logistics have gotten in the past 30 years.

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It’s Alive! – Is The 60-40 Portfolio Model Back?

Market Memo

October 2022 – By Kyle Rohrwasser

Just in time for Halloween, the 60-40 portfolio model has risen from the grave in just a few short months.  A 60/40 portfolio has long been an industry standard, representing 60% equities with a ballast of 40% fixed income.  Between October of 2018 and August 2020, we saw 10-year treasury rates drastically move down from 3.23% to 0.55%. That created a paradigm shift towards equity over fixed income. Fixed income prices move in the opposite direction of their yields.  As yields drop, prices increase, and vice versa.  This inverse relationship is known as Interest Rate Risk and is measured by a data point known as duration.  During the summer of 2020, with fixed income yields pressed lower, adding interest rate risk almost guaranteed losses in the event the Federal Reserve increased interest rates.  This had some analysts claiming the 60/40 portfolio was dead, as the ‘safe’ portion of the portfolio (fixed income) carried a high degree of interest rate risk while simultaneously paying very little yield.  This dynamic caused many investors to allocate even more to equities to compensate for the poor fundamentals within the fixed income market. 

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Better Than Most

Market Memo

September 2022 – By Kyle Rohrwasser

“I continue to believe that the American people have a love-hate relationship with inflation. They hate inflation but love everything that causes it.” – William E. Simon

The most recent example of the quote above was the liquidity provided by the Federal Reserve during the COVID pandemic through stimulus and PPP loans. There has also been a slow building of a swelling governmental budget and accommodative banking practices with the use of quantitative easing (increasing the money supply). This caused increased stock prices, home prices, more economic activity, in turn more jobs, etc.… all things Americans love! Now we face the reverse as the Fed will be restrictive for the foreseeable future.

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