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Steady-As-She-Goes

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Jeff-PantagesAdjective

  • steady; careful; avoiding sudden change.

 Origin

  • From the nautical phrase steady as she goes.

Phrase

  • (nautical) A cry to a helmsman to keep on the current course.
  • (economic/Jeff) A description of the U.S. economy over the past few years.

The U.S. unemployment rate held steady at 5% and 160,000 new jobs were added in April. Wages increased 2.5% versus last year, which is not bad given a 0.9% inflation rate.

Markets were a bit disappointed as they had expected a job gain of +200,000, but the report didn’t offer a dramatically different picture of the economy than the one investors already had. It is a slow and steady economy.

The futures market’s odds of an interest rate hike following the June FOMC meeting went down on the news and are close to zero. Even a December hike is now only a 50/50 proposition.

U.S. stocks meandered, ending the week roughly unchanged. Foreign stocks got clobbered losing 3 to 4%. 10 year Treasury yields remained range bound around 1.77%.

Elsewhere in the news last week…

Markets shrugged off Puerto Rico’s default. According to the WSJ: “Investors shook off news of Puerto Rico’s default, the latest reminder of the resilience of the $3.7 trillion market for the debt of cities, states and local governments. The market was similarly little disturbed by previous crises including those in Detroit and some smaller cities in California, in part because there are so many issuers. In addition, much of Puerto Rico’s debt is the hands of hedge funds, dulling the impact on mutual funds and individual investors. Even after the default Monday by Puerto Rico’s Government Development Bank, only about 0.5% of the municipal market is in default.”

Congress is working to provide an oversight finance committee to assist the Commonwealth in restructuring (a.k.a. defaulting on) its debt as the Chapter 9 bankruptcy process is unavailable to the island. It is not a “bailout” of Puerto Rico – no taxpayer money is involved. APCM does not own Puerto Rican bonds.

The Misadventures of Fannie and Freddie: I’ll let George Will tell the story of the conservatorship and the expropriation of the earnings of the two mortgage giants – Fannie Mae and Freddie Mac.

Financial Gaslighting: This great article explains the poor track record of hedge funds and why investors should think twice before jumping in. (It happens to reference a favorite movie thriller/mystery of mine, Gaslight, which stars Ingrid Bergman and Charles Boyer.)

Bill and Brandy are on deck doing the EYE for a couple of weeks. I will be on vacation in Texas and attending the John Mauldin Investment Summit in Dallas.

 

Jeff Pantages, CFA®
Chief Investment Officer

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