Slowing, slowing, slowing...
Earlier this spring, we wrote a series of Investment Outlooks with respect to the global economy and inflation. We concluded that a soft landing was a real possibility but we had to wait and watch to see how the data evolved. It now appears that the economy is clearly slowing and the US Federal Open Market Committee (FOMC) will begin its rate cutting program in September. If this goes as theoretically planned, the decrease in administered rates should provide stimulus to the economy. Given that inflation has begun to drop, sticking to a soft landing would mean that the stimulus would not drive inflation back up. This, of course, remains to be seen and is harder to do than say. We now conclude that the economy is beginning its slow down and will watch closely in the coming months to see if central banks around the world can avoid a hard recession.
We have read management commentary from dozens of companies and can see a clear indication of a consumer slow down. Luxury items, casual restaurant traffic, renovations large ticket items & consumer airline volumes, for example, have all deteriorated. This is a recently developing trend.
- Figure 1 presents the probability of interest rate cuts in the US. Based on the table, we believe rate decreases will begin in September. It appears that consensus is that there will be 3 rate cuts this year. However, it will take some time to see the impact of cuts on the economy, both with respect to growth and inflation.
- Figure 2 shows the deterioration in manufacturing data around the globe. As you can see, most managers in most major economies believe that business will contract over the coming months. Not a great outlook.
“This means that” now we will have to see how fast and how far the economy slows, while at the same time keeping a close eye on inflation and employment data. Today, monthly US employment data was released and was not well received by the markets. The trajectory of employment is a very important part of the economy, so we will discuss this in more detail next week.
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Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Conviction Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).
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