Investment Management

Bullwhip Effect As we enter 2023, we’re now three years into the substantial and dramatic shifts brought on by Covid. Redrawing the economic landscape is like attempting to redraw country borders after shifting tectonic plates. The path back to homeostasis cannot happen without bullwhip effects and significant, momentum-driven ups and downs across all markets. Earnings volatility reduces valuations. At a…

Rates The driving forces of this market boil down to a handful of factors we’ve been tracking all year. Short-term rates are now 4.5%, up from .25% in February 2022, meaning you can earn 3.5%-4.5% on your cash alone. Higher rates make risk assets like equities far less attractive. Why risk anything when you can earn 4% guaranteed? The problem…

Rate Hikes The Fed is doing exactly what it said it would do: raising interest rates rapidly to get inflation under control. This week’s 50 basis point hike brings us to 4.5%, the fastest rate hike in modern history. Notably, the futures market says this could be the final rate hike, with now just an outside chance of reaching a…

Money Supply When you add cash into a system, the value of each dollar starts to dip, which ultimately leads to a rise in prices across the board. And if supply is tight due to disruptions in the supply chain, well, then you can expect prices to skyrocket for obvious reasons. The big question on everyone’s mind right now is…

Unicorns The term “unicorn” refers to a private startup worth over $1b. Globally there are more than 1,200 unicorns with a combined valuation of $4.2 trillion. This term serves as a tool for marketing and recruitment as well as bragging rights for founders and investors. VC’s don’t have enough dry powder to mint or sustain unicorns on their own. In…

Turning the corner on rates and inflation The Fed’s next rate hike meeting is on December 14th. More likely than not they will raise interest rates by another 50bp from 4% to 4.5%. This continues the fastest rate hike in modern history from .25% to +4% in less than 12 months. The next inflation report is on December 13th, just…

Marching Forward The latest inflation data will be out by the time you’re reading this. That data informs how the Fed will treat further rate rises. The Fed recently stated their preference for raising rates too far and fixing the ensuing damage with stimulus. In the meantime, I think we’ve all got the message that the Fed wants to slow…

Fundamentals After yesterday’s Fed meeting, we’re now roughly 80% of the way through the rate hike cycle. The fed funds rate is now at 4%, up from .25% in March ‘22 and will likely peak around 5% early next year. Most companies’ revenue and earnings continue to climb steadily, but forward guidance is weak. Any company that issues weak guidance…

Timing By the end of 2022, we will have raised rates from .25% to 4.75%, the fastest rate rise in modern times. Larry Summers said, “This is probably going to be a textbook case of crisis creation followed by crisis mismanagement.” Investor sentiment is very negative due to continued negative price momentum, the ongoing implications of Russia/Ukraine, inflation prints and…