There’s no time for slacking in the heart of summer’s warm and soothing embrace. Interesting developments in global investment markets abound. This month, we spring off from where we left off in the last edition – Central Bank rates. If you haven’t already, be sure to review June’s edition on an interesting observation on Central Bank rates. But be mindful that the rates listed there are already dated.
Why? Simply because three of those seven rates have already changed, with the Bank of Canada, the US Fed and the European Central Bank having raised their rates by 25 basis points (aka a quarter of a percent) in July. With every push higher in their rates, so too does the period extend in when we saw such rates before. In most cases, it’s been well over a decade, if not two decades, since rates were last at this level. And it’s the younger investors, those typically in the 18-45 years of age, who’s little to no experience in navigating these changing economic times will likely impact the most on investment portfolios.
Yet, the odds of Central Banks changing course are shifting in favor of lowering rates in the next 6 to 12 months. If we focus on the “Don” of Central Banks, the US Fed, we can approximate current expectations for rate Pause, Hike or Cut at upcoming Fed Meetings: (1.)
Meeting Date Pause Hike Cut
September 20, 2023 83% 17% 0%
November 1, 2023 66% 34% 0%
December 13, 2023 60% 30% 10%
January 31, 2024 50% 22% 28%
March 20, 2024 37% 13% 50%
May 1, 2024 17% 4% 79%
June 19, 2024 11% 2% 87%
In other words, market participants are expecting US Fed rates to be lower by next spring. And most speculate this will be due to them reaching their goal of lowering inflation. But, for long time readers who know me, I like to dig for complementary viewpoints. And, yet again, Lobo Tiggre at the Independent Speculator doesn’t disappoint, with his very humble take:
“I think the Fed is indeed likely to cut rates by the end of this year – but not because of a soft landing. As I’ve been saying, I think the Fed will ‘break something’ else. That would raise the specter of systematic risk and force the Fed to pivot. I realize that nothing appears to be blowing up at the moment, but it’s the nature of economic surprises that they surprise us.” (2.)
There are two powerful reasons I submit this quote for your consideration. Firstly, regardless of my take with his premise that the Fed will “break something”, it’s a thesis that can’t be ignored. I need only remind the reader of the fourth quarter of 2018, with markets showing signs of sliding into oblivion as the Fed attempted to break out of ridiculously low rates. This time they have the cover of obvious excess inflation. But even then, what happens if the excessive inflation were to suddenly and violently vanish?
And that leads to Lobo’s second simple but remarkable reminder – surprises are meant to surprise us. Who knew!?!? And yet, the markets seem to discount this natural reality. But we can’t pause the game in the midst of a surprise. We can only prepare for the possibility of surprises down the road. As the borderline cliché example reminds us, you can’t buy fire insurance when your house is on fire.
Is it time to insure your wealth creating investment portfolio? Are you ready for a money management approach that’s different than the stale banking approach? Lets connect so we can showing you how we are better positioned to invest and conserve your money so you can enjoy and share it long into the future.
All My Best,
Adrian Harasymiw Investment Advisor Pinnacle Sovereign Investments of ACPI
P.S. To review the July market numbers or download a PDF copy of this commentary, check out the Monthly Market Pulse page on our website.
(1.) CME Group - amounts are consolidated and rounded, due to daily changes
(2.) Speculator’s Digest – July 29, 2023 edition – free resource