Where Are Interest Rates Headed?
Cash has had a great run, but the juicy yields we’ve gotten used to on everything from CDs to money market funds won’t stick around much longer. Whether they cut rates in September or early next year we believe cuts are coming relatively soon.
0ur call - The Federal Reserve headed by Jerome Powell was late to raise rates coming out of the pandemic, they were slow to stop raising rates, and they will likely be slow to cut rates as the economy slows and inflation heads back to 2%. Six months ago, they were projecting six cuts this year. At the time, we told you we might see one or two late in the year. We are still sticking with our prediction. We have anticipated these moves and started locking in bond investments for longer periods of time.
Fad Investments - It Never Ends Well
Tulips, and packaging bad mortgages, are just a few of the many fad asset bubbles in financial history. Remember Dotcom dot gone? In early 2000 the dotcom boom went ka-boom inside the portfolios of US investors, with the Nasdaq index ripping from 2500 to 5000 and back to 2500 within two years – and another 50 percent was lost in the two years that followed.
We have been seeing more and more signs of this type of froth and hysteria in certain small areas of the stock market.
The recent reemergence of “meme stocks” trading, like the run they had during Covid with total lack of any fundamentals backing them, occurred again in May. Another spot we are watching is the same type of retail investor, trading illiquid stocks in the after-hours market. These “traders” are causing a huge amount of volatility in certain stocks. This trading and the market moves associated with it are not based on any reality and can be quite dangerous for those involved.
Stay away.
Beware of the new 70/30 – I hear so many investors say, “What do you think of my portfolio?”. When we investigate the holdings, we see a large position in Nvidia and some T-bills yielding +5%. The funny thing is, they feel very safe in this portfolio. Nvidia is a great company, but valuation will probably continue to be quite volatile and could easily lose 30-50% of it’s value very quickly (like it did in 2022 when it fell more than 50%). This is not a diversified portfolio.
Crypto – As fiduciaries, we cannot recommend investing in crypto currencies. Is it really a currency? I’m not sure I know many people who have ever used it to buy anything. Stable value? I think not. Where is it held? At Charles Schwab? I think not.
Private Credit – This is a real asset, but there are a few things that worry me about it. Literally every Wall Street firm I talk to is trying to sell me on their new offering of Private bonds. There is so much money piling into an asset class that has high fees, low transparency, no skin in the game by managers, and bad accounting rules. What could go wrong? Watchdogs are starting to sound the alarm bells on both Private Credit and Private Equity. Stay away for now.
Diversification of high-quality securities across multiple asset classes is the key to long term health of your investment assets. Our job is to work with people who are willing to allow us to plan the path to their goals and dreams, so that we can, together, work toward reaching their own personal ultimate destination.
Hope everyone is having a great summer.
Best,
Dan Moskowitz
President
If you have any questions, please contact Chatham Wealth Management at (800) 472-8086.
10 Town Square | Suite 100 | Chatham, NJ 07928 | 1-800-472-8086 | chathamwealth.com
Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.