The FOMC Adjusts
The fixed income markets and, as a result, the stock markets took “an about face” this past week. Over the holidays, multiple US Federal Open Market Committee (FOMC) members indicated that the recent change in the long bond markets had the effect of tightening financial conditions. Now, it appears, investors believe the fed has paused.
- In Figure 1, we present the 5 and 10-year US Treasury Bond yields over the past week and a half. Readers may remember that in our previous Investment Outlook, we highlighted the inflation and employment data from the beginning of October. At that time, it appeared that investors took a dim view of the data. It appeared that the FOMC would still have to raise rates in order to reduce inflation and slow the hot job market. As noted above, with FOMC member speeches this week, the market view has changed and rates have fallen back to where they were at the end of September, before the “hot” data was released. This has also had the reverse impact on the stock market with bids coming back in global markets this week.
- In Figure 2, we present the same 10-year yields noted in Figure 1 above but with a different time frame (from early spring). We have also circled, in green, the “zoomed in” time frame from Figure 1. Readers could see how far the bond market has moved and the effect of the recent financial tightening comments by the FOMC members.
“This means that” once again we would like to reiterate how difficult it is, from an investment perspective, to predict with any consistency what central banks will do and how the market will react. We remain focused on the long-term prospects of the companies that we invest in and monitoring how their business operations are evolving.
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).
Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.