BRAMSHILL BLOG: From the Desk of Art DeGaetano
“Inflation will never return due to the technology revolution.”
“High global debt levels will keep inflation low for decades to come”
“Interest rates will remain consistently low as the world becomes more Japan-like experiencing deflation.”
Over the past few months, we have heard some bold statements—like the ones above—on interest rates and inflation from very well-regarded investors. We even read a recent investment piece written by a high profile CIO who manages tens of billions of dollars who characterized today’s environment as the “current financial repression.” Humbly, we have to ask: what world are all of these people living in?
On a macroeconomic level, corporate earnings are significantly stronger year over year. China GDP figures have been strengthening beyond expectations. US ISM figures continue to reflect an expansionary environment. Corporate spreads in both investment grade and high yield debt continue to improve and remain tight. Europe is exhibiting manufacturing growth. US equity markets are at all-time highs. Unemployment is trending lower and conference board figures point to wage growth. Even the US dollar is moving lower, which should translate into higher commodity prices that are key components to inflation measures. Why can’t interest rates rise and the rate of inflation improve?
On a microeconomic level, aside from the “Amazon effect” affecting prices of certain goods, it seems as if every time we turn around our Starbucks prices are going up, our overall food and cost of living is grinding higher, our business insurance and healthcare costs are more expensive, and our kids’ tuition and summer camp costs increase annually. This all seems inflationary to us and is supported by strong corporate balance sheets and overall asset price appreciation. Combine all of this with a Federal Reserve on the move, intent on raising interest rates and beginning to reduce its balance sheet. Often times we have had divergent opinions from the Federal Reserve. However, at Bramshill Investments, we currently are in agreement with Janet Yellen’s assessment that any recent soft economic data should be deemed “transient” as overall growth figures improve.
There have been times over the past 8 ½ years of managing the Bramshill Income Performance Strategy when our view on interest rates has not played a significant role in our positioning. This, however, is not one of those times. We see the movement of interest rates and inflation significantly impacting the fixed income market for the 2nd half of 2017 and well into 2018.
To read our entire market outlook, download Bramshill’s Q2 2017 Investor Letter.
This commentary is provided by Bramshill Investments, LLC for information purposes only and may contain information that is not suitable for all investors. Certain views and opinions expressed herein are forward-looking and may not come to pass. Investing involves risk, including the potential loss of principal. Past performance may not be indicative of future results, which are subject to various market and economic factors. No statement is to be construed as an offer to sell or solicitation to buy securities or the rendering of personalized investment advice.