What about the Consumer?
We recently took a trip to Asia (Japan and China) to attend a conference, take in a site visit and do some marketing and client visits. We wanted to discuss our experience and started to do that last week with Investment Outlook Ed 6 but will break for now to discuss the tariffs that have been put in place by the US administration this week.
It is difficult to draw concrete conclusions from the press conference on Wednesday. Like many things, the devil is in the details and there appears to be a number of important exceptions for our portfolios. However, the details of the implementation and their impact on any particular business or industry remains to be seen until they are released. Clearly, however, the magnitude of the tariffs was not expected and cannot be a net positive. The other issue is the uncertainty that inserts into the global economy. Both company management and investors alike do not like uncertainty. This has played out in global securities markets on Thursday & Friday. We expect it will continue.
Figure 1 presents US consumer confidence for the past three years. We think that it is important to track this information. The US is essentially a consumption economy and, as a group, that segment makes up approximately two-thirds of GDP. As you can see from the chart, there has been a steady increase in confidence from 2022 until it peaked at the end of 2024. However, the first three readings of the year took a dramatic turn, and this does not take into account the tariffs announced this week … the consumer was already on edge. We believe that inflation is a major concern for the average American and they clearly understand that tariffs will increase prices. Recessions come from decreased spending at the margin and we are clearly at risk of that now.
“This means that” we previously concluded that the US was very close to engineering what we expected to be a rare soft-landing for their economy. The set-up was great. Employment was strong, inflation was decreasing, and business confidence was higher than anywhere else in the world. We also said that we would not declare the economy had “landed” until we could get a better understanding of the orientation of the new US administration. In their last term, the Republicans had been very “pro business” and this was good for markets. The change this week is potentially historic. If it stays it will not be positive for the global economy. We expect that with the coming volatility there will be good opportunities to reposition the portfolios and put our excess cash to work.
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Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Conviction Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
For more information, please follow the links above to review the fund term sheets.
*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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