Author Archives: Michael Murphy

Dear New World Investor: Oh, no! Fitch downgraded US government debt from AAA to AA+! I did not expect this! It dramatically affects… Nothing. Literally. Not. A. Thing. As Mohamed El-Erian said: “Why now? When you look at the reason, you scratch your head as to the timing of this. I don’t think that this Fitch rating changes anything.” Warren Buffett says he’s not concerned about the Fitch downgrade, saying his company continues to buy $10 billion of Treasury bills each week. “There are some things that people shouldn’t worry about and this is one.” After S&P did the same...

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Dear New World Investor: I was wrong. I thought that with inflation cooling, lagging components like rent set to fall for several months, manufacturing already in a recession, and labor markets cooling, the Fed would be smart enough to continue pausing interest rates and watching incoming data to see the full effect of their most aggressive rate hiking campaign since the 1980s – 10 increases totaling over five percentage points since March 2022. Nope. They raised the Fed funds target range by 0.25% yesterday to 5.25%-5.5%, the highest level since March 2001. They repeated June’s language: “In determining the extent...

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Dear New World Investor: Cyclical bull and bear markets can last from several months to a few years. Secular bulls & bears last several years to decades and include multiple cyclical markets. The 2022 cyclical bear was far closer to the average cyclical bear in a secular bull than a cyclical bear in a secular bear. Click for larger graphic h/t @edclissold I continue to think we are in a secular bull market to 2036, based on the 36-year cycle that last peaked in 2000. But there will be cyclical bear markets along the way. Bear markets usually start when...

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Dear New World Investor: This is our next-to-last light week this quarter – the earnings deluge starts the week of July 24. The Radar Report is published on Thursdays. On Fridays, I repurpose parts of it in two Substack newsletters. Each has a free section and a paywalled portfolio. I mention this because some Lifetime subscribers have decided to subscribe to one or both newsletters. Boomberg, nominally written by the champion rodeo bull Red Rock, uses some of the first part of the Radar Report in the free section, and then has a portfolio behind the paywall designed for “Tracking...

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Dear New World Investor: Yesterday’s Fed minutes showed some of them were reluctant to back the pause that was finally decided. Almost all backed more increases in 2023 unless inflation comes down – no surprise there to us, although apparently Wall Street was shocked, shocked. Even after today’s new unemployment filings rose by 12,000 to 248,000, a bit higher than expected, the CME FedWatch tool showed markets are now pricing in a 92.4% chance of a hike at the Fed’s July 26 meeting. The Institute for Supply Management’s manufacturing gauge fell for the eighth straight month to 46.0 in June,...

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Dear New World Investor: The economy is a little stronger than most investors expected while inflation (or at least the headline year-over-year Consumer Price Index) is slowing faster, cutting the foundation of the stagflation bears. Today, first-time jobless claims unexpectedly dropped to 239,000 from 264,000 last week. They were expected to rise to 270,000. The third estimate of real GDP growth rarely changes the second estimate very much. But today the Commerce Department’s third estimate of March quarter GDP rose to 2.0%, higher than the expected 1.4% estimate. GDP still decelerated from the September quarter’s 3.2% growth and the December...

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Dear New World Investor: Wednesday and Thursday were the Fed’s semiannual Humphrey-Hawkins testimony to Congress. “Even if inflation accelerates, we aren’t going to raise rates,” said nobody, ever. Of course Chairman Powell said they may raise rates further if inflation doesn’t head down towards 2%. The next Fed meeting is on July 26, while the next Consumer Price Index report comes July 12. It is expected to decline to only 3.2% year over year. With that kind of news, there is no chance they’ll raise the Fed funds rate again. That’s the good news. The bad news is in this...

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Dear New World Investor: As I expected, the Fed did not raise interest rates Wednesday, after raising at each of its previous 10 meetings. They did, however, raise their interest rate forecasts for this year, signaling rates could rise to as high as 5.6%, implying at least one more rate hike, or roughly 37 basis points worth. Three officials see rates rising higher than that, closer to 6%, all “if inflation continues.” Whether this is a pause before declines begin next year, as I believe, or just a skip before at least one more increase later this year remains to...

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Dear New World Investor: Last Friday’s announcement that May payrolls increased by 339,000 jobs, far above the 190,000 estimate, marked the 14th-straight month that job creation came in above what Wall Street economists had expected and the largest monthly increase since January. Wall Street was “shocked” and with the next Fed meeting only a couple of weeks away, the stock market crumbled, right? Wrong! The S&P 500 rose 61 points or 1.5% as investors suddenly decided good economic news really is good stock market news. And those of us who believe a pause is coming on June 14 are gaining...

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Dear New World Investor: Federal Reserve Governor Philip Jefferson, President Biden’s nominee to be Vice Chair of the Fed’s Board of Governors, and Philadelphia Fed President Patrick Harker suggested yesterday that the Fed could pause rate hikes at its next policy meeting on June 13-14. But Wednesday’s Job Opening and Labor Turnover Survey (JOLTs report) showed 10.1 million job openings at the end of April, an increase from March’s 9.8 million and well above the consensus expectation for 9.4 million. So St. Louis Fed President Jim Bullard said he is looking for two more rate hikes, Dallas Fed President Lorie...

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