Michael’s CIO (Check-It-Out) Report — events, sarcasm, and global macro reflections
March 22, 2024
THEME: THE FED’s WORDS of AFFIRMATION
We’ve come to realize that the Fed’s primary love language is “words of affirmation”, i.e., words of encouragement and verbal acknowledgments💖. Wednesday, Fed Chairman Jeroe Powell affirmed that they will—absolutely positively maybe sometime this year—at some point:
- Lower interest rates three times
- Slow quantitative tightening (QT) [i.e., they will reduce their pace of shrinking their balance sheet by selling Treasuries and mortgage bonds they own on to the open market]
- Keep lowering interest rates in 2025
- Guide U.S. inflation down towards their 2% target.
And investors responded with the Dow, S&P 500, and NASDAQ all closing at record highs Wednesday and again Thursday following the Fed’s announcement.
After “words of affirmation”, Powell and the Fed governors will spend “quality time” with the markets, in focused conversations about lower interest rates, lower inflation rates, and long-term projections of less monetary tightening and more monetary easing.
Powell realizes that confidence, encouragement, and the promise of a bright horizon are the cheapest forms of stimulus. HOWEVER, eventually, investors will want to see “acts of service”, otherwise the markets may stop bearing “gifts” and start getting “physical”!
FED UP NO MORE: The Fed Takes a Cautious Approach to Monetary Policy
In serious terms, the Federal Reserve signaled a cautious approach to monetary policy this week, despite market expectations for swift action. While maintaining their plan for three interest rate cuts in 2024, policymakers emphasized the need for more evidence of sustained inflation control before acting. Recent declining data inflation offered some encouragement, but the Fed remains concerned about potential future trends, especially if global shipping through the Panama and Suez Canals remains disrupted. The Fed also needs to keep in mind that if Donald Trump wins in November, he is likely to raise tariffs against China which will be immediately inflationary.
“Trumponmics: Trump claims he will consider a greater than 60% tariff on Chinese goods if elected—of course, consider is different than implement.” Michael Ashley Schulman, CHINOMICS, 2/11/2024
Powell’s cautious stance extends to the Fed’s balance sheet reduction strategy. The FOMC announced a slowdown in the pace of bond-buying reduction, aiming for a “smooth transition” and avoiding market disruptions. Investors reacted positively to these announcements, interpreting them as dovish and foreshadowing lower rates. However, as in recent past announcements, the Fed’s overall message emphasized a data-driven approach, with further policy shifts contingent on observed economic conditions.
Looking ahead, the Fed’s economic projections reflect their desire for a soft landing. They slightly raised their 2024 inflation and growth forecasts while lowering the unemployment rate prediction. This demonstrates their intention to achieve economic goals without triggering a recession. Chairman Powell further clarified the Fed’s reserve management strategy. By aiming for “ample” reserves instead of “abundant” ones, they hope to maintain stability in money markets and avoid excessive volatility.
The prospect of future rate cuts could prove beneficial for certain sectors. Lower interest rates, or even the anticipation of future cuts, could act as a lifeline for commercial real estate, regional banks, and companies burdened by debt refinancing.
STOCKS
US stocks are high, but not ridiculously so; if there is a bubble or melt up, we are still in the early stages. There is a lot of money on the sidelines and a lot of uncertainty with Europe trying to re-arm, a proxy WWIII occurring in Ukraine, Iran fighting proxy wars in the Middle East, and a contentious U.S. presidential election in November. So far the Fed has managed to push out rate reduction expectations and stocks have managed to keep ascending based on healthy earnings and margins. As long as the not too hot/not too cold Goldilocks environment continues, equities could do okay.
Except to help banks and a faltering commercial real estate sector, I don’t see why the Fed would lower interest rates ahead of the election; unemployment is low, growth is above 3%, and inflation is well above their target, and with increased shipping costs and continued wars around the globe, supplies might not get cheaper. That said, because the Fed has hinted at a rate drop, it may enact a token 0.25% reduction in June.
PERSONAL
Quoted: We were recently quoted: by Bloomberg about Zimbabwe’s possible switch to a gold-backed currency; by Reuters regarding Digital World shares; by The Epoch Times regarding China and deflation; by U.S. News & World Report regarding bond funds; and by several others.
Family Office: I spoke on March 5 at the Family Office “Beverly Hills Super Summit”—regarding Private Investor Mandates: Preferences and Strategies of Ultra-Wealthy Private Investors—and of course I mentioned private placement life insurance (PPLI) as a phenomenal structure for the right family
Finacial Planning: Running Point hosted a lively March 14 Pi Day event for MIT and MIT Sloan alumni that focused on the importance of a financial plan, trust and estate setups, and tax planning as well as answered questions about investments and the economy
Real Estate: On March 19, I moderated an excellent real estate panel at the ALTSLA alternative investment conference—organized by CFA, CAIA, CalAlts, and Markets Group—with esteemed panelists, Dimitri Krikelas of Westmount, John Curry of Setanta, Douglas Schwartz of JP Morgan, and Jeff Karsh of Tryerion
Venture Capital: On April 8, find me at SuperVenture US West in Los Angeles, on a portfolio construction panel
Private Investments: On April 9, hear me at SuperReturn US West in L.A., where I’ll speak about “Democratisation: What managers need to know to attract new sources of capital”
Make it a great week😃,
Michael
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Michael Ashley Schulman, CFA
Partner & Chief Investment Officer
Running Point Capital Advisors, your family office
“We deliver custom investment solutions, family office services, innovations, and unique perspectives to you and your family—we are your family office—you can emphasize your enjoyments, priorities, and legacy.”
Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-24-45
