Lloyds Intrepid Wealth Management

11/21/2023

It's that time of year!

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06/24/2023

05/18/2023

Lions, Tigers, and Debt Ceiling Crises.

In 2011, we had a debt ceiling crisis similar to today's. There were bitter politics and fears that trillions in bond sales would push down bond prices and create inflation. But it wasn't a disaster.

Yields were falling in the lead-up to the crisis and continued falling afterwards. How could this be? Some possible theories:

1. The Feb bought all the excess bonds. Partially true.
2. Higher debt levels are long term deflationary because they lead to higher taxes and lower spending later. Partially true.
3. Uncertainty was resolved and bondholders received their principal and interest payments on time. Completely true.

Of course, today the Fed is implementing a much tighter policy compared to 2011. Fed funds are at 5.13% and they are not buying bonds via QE. That is the biggest uncertainty going forward as this problem is resolved.



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05/17/2023

Segment Rate Update

For those of you who worry about such things, here is a chart showing the evolution of Segment Rates 1, 2, and 3 over the last eight years. If you notice, those rates fell when the economy decelerates or falls into recession.

A recession should pull down inflation, suppress interest rates, and help segment rates decline. Call is if you want to discuss.



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05/08/2023

The rumors of the US Dollars demise are greatly exaggerated (~Mark Twain).

First, to push the US Dollar off of its pedestal, something else must replace it. Gold? There is limited supply and it's difficult to carry around. Bitcoin? The largest bitcoin banks that tie bitcoin accounts to the US bank systems have failed (FTX and Signature Bank).

Perhaps the Euro, Yen or Yuan? Our trading partners do not want to be the reserve currency because it directly opposes their mercantilist policies. Mercantilists want a cheap currency to facilitate trade and build a trade surplus. Only we Americans have been willing to make the sacrifice of a strong Dollar and trade deficit. The new reserve currency country must be willing to let their currency strengthen, let their industries be poached, and be prepared to enforce their rules with a competent military.

Since the financial crisis, our trade partners have consistently devalued against the US Dollar.



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05/05/2023

Good news and bad news on inflation.

As the economy decelerated, we expected inflation to fall. With regards to headline or total consumer price inflation (CPI) that is exactly what we see. Headline CPI peaked in 2022 at 9% and fall to about 5% in the latest reading. That is the good news.

The bad news is that Core inflation remains stubbornly high. Core inflation excludes commodities like food and energy to give policy makers at the Federal Reserve a sense for the underlying long-term trend in inflation. Their favorite Core inflation reading looks at the inflation of personal consumption and is called Core Personal Consumption Expenditures (Core PCE). This is important because the Fed will be making policy decisions based on this data point and it is not falling like the other inflation readings.

How does this relate to the current situation? If the stock market is strong because it is anticipating rapid interest rate cuts, the Core PCE inflation readings indicate this may be an incorrect assumption and the Fed may hold rates higher for longer as they have promised.



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05/04/2023

Bond markets rose sharply after the shutdown of Silicon Valley Bank. There is a massive movement of cash underway from the banking system to the bond and money markets. This will create ongoing problems for the economy because this type of depositor outflow sucks cash out of the banking system, preventing bank lending. We expect this to negatively affect mortgage, auto, and business lending, significantly impeding economic growth.



Our disclosure: https://www.lloydsintrepid.com/disclaimer2

05/04/2023

Equities remain in a bear market that began in January 2022. It is our view that the bear market will continue until four key factors are aligned:

1. Inflation falls - Headline CPI fell 9% to 5%; Core CPI still strong 4.5%.
2. Employment falls. Labor market is currently strong.
3. Earnings fall. 2023 EPS estimates are down about 12% from 2022 peaks.
4. Interest rates fall. The Fed just raised interest rates this week.

So far, we have only seen modest weakness in inflation and earnings from the peak in 2022. Employment and interest rates are still rising.



Our disclosure: https://www.lloydsintrepid.com/disclaimer2

04/27/2023

Our economy depends on bank lending to grow. When Fed policy or financial stress affect lending, the real economy responds.

We see a big uptick in tighter lending conditions. This is a direct policy goal of the Fed: raise interest rates high enough to slow lending, thereby slowing growth and hopefully slowing inflation.

If you'd like to discuss how to manage through this environment, please reach out to us [email protected].



Our disclosure: https://www.lloydsintrepid.com/disclaimer2

04/26/2023

Wouldn't it be great if we had an indicator that combined the most effective LT market leading indicators? Well, here you go...

Our Bear Market Indicator combines 10y-2y Treasury spread, ISM Manufacturing Index, Inflation, Cyclically Adjusted PE (Shiller's PE), and Unemployment.

It shows we are past the peak, but not near the trough.



Our disclosure: https://www.lloydsintrepid.com/disclaimer2