Economic Strength... High Rates?
This week, we note anecdotal commentary from several different companies and Federal Open Market Committee (FOMC) members. We concluded that inflation has remained stubbornly high while the global economy remains strong. While the FOMC paused its rate increases at the last meeting, it guided that there would be more rate increases to come. Indeed, we have seen commentary from several Fed governors that this positioning remains the case:
- “Core inflation is not coming down like I thought it would. Inflation is just not moving and that’s going to require, probably, some more tightening to try to get that going down” – Federal Reserve Gov Christopher Waller
- “…we’re still talking about, I mean, what is as strong a labor market as we’ve seen in, you know, a half-century here in the United States. So overall unemployment of 3.7% is three-tenths higher than it was measured to be at the last—a month ago but still it’s extraordinarily low. And so it’s a very, very tight labor market” – Federal Reserve Chair Jerome Powell
Furthermore, there is commentary from company management that business and pricing remain robust:
- “People tend to focus a lot on U.S. consumer. But obviously, we’re a global business, and our developing market consumers have been incredibly resilient. And so just — I’ll give you one example, Africa, which I already mentioned, …Brazil, the same type of thing with lots of things happening in Brazil and Mexico. Our business continues to be very, very positive, and we posted great results in our developing markets for several years in a row now.” – Kellogg (K) CEO Steve Cahillane
- “So we are seeing demand. It’s still robust. We’re seeing great demand for our vehicles, especially our new vehicles that we have in the marketplace. So that’s been strong.” – Ford Motor (F) CFO John Lawler
- “The other thing we’re seeing is pricing has held up pretty well through Q2. I think there’s still the potential as we go through the year that we could see some price coming off in the second half. But so far this year, through the second quarter, it’s remained relatively robust” – Ford Motor (F) CFO John Lawler
“This means that” economies and inflation remain strong. In the last week, the ECB, Switzerland, Norway, BOE and Turkey have all raised rates. According to the Fed Futures market and the commentary above, we expect the US will most likely do the same at its next meeting. In our opinion, the battle against inflation is ongoing and the subsequent potential soft landing is still a big question. We will remain laser focused on the data and will adjust our views and portfolios.
National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.
Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Real Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).
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